Correlation Between FutureFuel Corp and Gevo

Can any of the company-specific risk be diversified away by investing in both FutureFuel Corp 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 FutureFuel Corp and Gevo into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between FutureFuel Corp and Gevo Inc, you can compare the effects of market volatilities on FutureFuel Corp 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 FutureFuel Corp with a short position of Gevo. Check out your portfolio center. Please also check ongoing floating volatility patterns of FutureFuel Corp and Gevo.

Diversification Opportunities for FutureFuel Corp and Gevo

0.41

Correlation Coefficient

FutureFuel Corp  Gevo

Very weak diversification

The 3 months correlation between FutureFuel and Gevo is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding FutureFuel Corp and Gevo Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gevo Inc and FutureFuel Corp 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 FutureFuel Corp 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 FutureFuel Corp i.e., FutureFuel Corp and Gevo go up and down completely randomly.

Pair Corralation between FutureFuel Corp and Gevo

Allowing for the 90-day total investment horizon FutureFuel Corp is expected to under-perform the Gevo. But the stock apears to be less risky and, when comparing its historical volatility, FutureFuel Corp is 3.29 times less risky than Gevo. The stock trades about -0.05 of its potential returns per unit of risk. The Gevo Inc is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  73.00  in Gevo Inc on September 3, 2024 and sell it today you would earn a total of  92.00  from holding Gevo Inc or generate 126.03% return on investment over 90 days.

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

FutureFuel Corp  vs.  Gevo Inc

FutureFuel Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days FutureFuel Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Gevo Inc

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Gevo Inc are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Gevo displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with FutureFuel Corp and Gevo

The main advantage of trading using opposite FutureFuel Corp and Gevo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FutureFuel Corp 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 FutureFuel Corp 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.

Check out your portfolio center.

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 Equity Valuation module to check real value of public entities based on technical and fundamental data.