Correlation Between GM and Certara

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

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

Diversification Opportunities for GM and Certara

-0.36

Correlation Coefficient

GM  Certara

Very good diversification

The 3 months correlation between GM and Certara is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Certara in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Certara 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 Certara. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Certara has no effect on the direction of GM i.e., GM and Certara go up and down completely randomly.

Pair Corralation between GM and Certara

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Certara. But the stock apears to be less risky and, when comparing its historical volatility, General Motors is 1.16 times less risky than Certara. The stock trades about -0.03 of its potential returns per unit of risk. The Certara is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  1,069  in Certara on December 27, 2024 and sell it today you would lose (54.00) from holding Certara or give up 5.05% of portfolio value over 90 days.

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

General Motors  vs.  Certara

General Motors

Risk-Adjusted Performance

Very Weak

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

Certara

Risk-Adjusted Performance

Very Weak

Over the last 90 days Certara has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Certara is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with GM and Certara

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

The idea behind General Motors and Certara 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.