Correlation Between GM and Catalyst Pharmaceuticals

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

By analyzing existing cross correlation between General Motors and Catalyst Pharmaceuticals, you can compare the effects of market volatilities on GM and Catalyst Pharmaceuticals 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 GM with a short position of Catalyst Pharmaceuticals. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Catalyst Pharmaceuticals.

Diversification Opportunities for GM and Catalyst Pharmaceuticals

-0.24

Correlation Coefficient

GM  Catalyst Pharmaceuticals

Very good diversification

The 3 months correlation between GM and Catalyst is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Catalyst Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Catalyst Pharmaceuticals and GM 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 General Motors are associated (or correlated) with Catalyst Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Catalyst Pharmaceuticals has no effect on the direction of GM i.e., GM and Catalyst Pharmaceuticals go up and down completely randomly.

Pair Corralation between GM and Catalyst Pharmaceuticals

Allowing for the 90-day total investment horizon General Motors is expected to generate 0.66 times more return on investment than Catalyst Pharmaceuticals. However, General Motors is 1.52 times less risky than Catalyst Pharmaceuticals. It trades about 0.21 of its potential returns per unit of risk. Catalyst Pharmaceuticals is currently generating about -0.02 per unit of risk. If you would invest  4,058  in General Motors on March 15, 2024 and sell it today you would earn a total of  828.00  from holding General Motors or generate 20.4% return on investment over 90 days.

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

General Motors  vs.  Catalyst Pharmaceuticals

General Motors

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of very weak primary indicators, GM displayed solid returns over the last few months and may actually be approaching a breakup point.

Catalyst Pharmaceuticals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Catalyst Pharmaceuticals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Catalyst Pharmaceuticals is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with GM and Catalyst Pharmaceuticals

The main advantage of trading using opposite GM and Catalyst Pharmaceuticals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Catalyst Pharmaceuticals 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 Catalyst Pharmaceuticals will offset losses from the drop in Catalyst Pharmaceuticals' long position.

The idea behind General Motors and Catalyst Pharmaceuticals 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.