Correlation Between Axalta Coating and Gevo

Can any of the company-specific risk be diversified away by investing in both Axalta Coating and Gevo at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Axalta Coating and Gevo into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Axalta Coating Systems and Gevo Inc, you can compare the effects of market volatilities on Axalta Coating and Gevo and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Axalta Coating with a short position of Gevo. Check out your portfolio center. Please also check ongoing floating volatility patterns of Axalta Coating and Gevo.

Diversification Opportunities for Axalta Coating and Gevo

-0.55

Correlation Coefficient

Axalta Coating  Gevo

Excellent diversification

The 3 months correlation between Axalta and Gevo is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Axalta Coating Systems and Gevo Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gevo Inc and Axalta Coating is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Axalta Coating Systems are associated (or correlated) with Gevo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gevo Inc has no effect on the direction of Axalta Coating i.e., Axalta Coating and Gevo go up and down completely randomly.

Pair Corralation between Axalta Coating and Gevo

Given the investment horizon of 90 days Axalta Coating is expected to generate 2.28 times less return on investment than Gevo. But when comparing it to its historical volatility, Axalta Coating Systems is 3.71 times less risky than Gevo. It trades about 0.04 of its potential returns per unit of risk. Gevo Inc is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  180.00  in Gevo Inc on December 1, 2024 and sell it today you would lose (39.00) from holding Gevo Inc or give up 21.67% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Axalta Coating Systems  vs.  Gevo Inc

Axalta Coating Systems

Risk-Adjusted Performance

Very Weak

Over the last 90 days Axalta Coating Systems has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Gevo Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Gevo Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Gevo is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Axalta Coating and Gevo

The main advantage of trading using opposite Axalta Coating and Gevo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Axalta Coating position performs unexpectedly, Gevo can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Gevo will offset losses from the drop in Gevo's long position.

The idea behind Axalta Coating Systems and Gevo Inc pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.