Correlation Between Southwest Airlines and Gevo

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

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

Diversification Opportunities for Southwest Airlines and Gevo

0.65

Correlation Coefficient

Southwest Airlines  Gevo

Poor diversification

The 3 months correlation between Southwest and Gevo is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines Co and Gevo Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gevo Inc and Southwest Airlines 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 Southwest Airlines Co 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 Southwest Airlines i.e., Southwest Airlines and Gevo go up and down completely randomly.

Pair Corralation between Southwest Airlines and Gevo

Assuming the 90 days horizon Southwest Airlines Co is expected to under-perform the Gevo. But the stock apears to be less risky and, when comparing its historical volatility, Southwest Airlines Co is 3.66 times less risky than Gevo. The stock trades about -0.04 of its potential returns per unit of risk. The Gevo Inc is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  144.00  in Gevo Inc on December 21, 2024 and sell it today you would lose (25.00) from holding Gevo Inc or give up 17.36% of portfolio value over 90 days.

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

Southwest Airlines Co  vs.  Gevo Inc

Southwest Airlines

Risk-Adjusted Performance

Very Weak

Over the last 90 days Southwest Airlines Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Southwest Airlines is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

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. Despite nearly stable basic indicators, Gevo is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Southwest Airlines and Gevo

The main advantage of trading using opposite Southwest Airlines and Gevo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southwest Airlines 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 Southwest Airlines Co 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.