Correlation Between REX American and Gevo

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

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

Diversification Opportunities for REX American and Gevo

0.3

Correlation Coefficient

REX American  Gevo

Weak diversification

The 3 months correlation between REX and Gevo is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding REX American Resources and Gevo Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gevo Inc and REX American 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 REX American Resources 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 REX American i.e., REX American and Gevo go up and down completely randomly.

Pair Corralation between REX American and Gevo

Considering the 90-day investment horizon REX American is expected to generate 43.86 times less return on investment than Gevo. But when comparing it to its historical volatility, REX American Resources is 4.97 times less risky than Gevo. It trades about 0.02 of its potential returns per unit of risk. 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	Very Weak
Accuracy	100.0%
Values	Daily Returns

REX American Resources  vs.  Gevo Inc

REX American Resources

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in REX American Resources are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong technical and fundamental indicators, REX American is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

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 REX American and Gevo

The main advantage of trading using opposite REX American and Gevo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if REX American 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 REX American Resources 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.