Correlation Between Applied Materials and GERATHERM MEDICAL

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

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

Diversification Opportunities for Applied Materials and GERATHERM MEDICAL

0.81

Correlation Coefficient

Applied Materials  GERATHERM MEDICAL

Very poor diversification

The 3 months correlation between Applied and GERATHERM is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Applied Materials and GERATHERM MEDICAL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GERATHERM MEDICAL and Applied Materials 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 Applied Materials are associated (or correlated) with GERATHERM MEDICAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GERATHERM MEDICAL has no effect on the direction of Applied Materials i.e., Applied Materials and GERATHERM MEDICAL go up and down completely randomly.

Pair Corralation between Applied Materials and GERATHERM MEDICAL

Assuming the 90 days horizon Applied Materials is expected to generate 1.0 times more return on investment than GERATHERM MEDICAL. However, Applied Materials is 1.0 times more volatile than GERATHERM MEDICAL. It trades about 0.22 of its potential returns per unit of risk. GERATHERM MEDICAL is currently generating about 0.13 per unit of risk. If you would invest  11,827  in Applied Materials on April 21, 2025 and sell it today you would earn a total of  4,731  from holding Applied Materials or generate 40.0% return on investment over 90 days.

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

Applied Materials  vs.  GERATHERM MEDICAL

Applied Materials

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Applied Materials are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Applied Materials reported solid returns over the last few months and may actually be approaching a breakup point.

GERATHERM MEDICAL

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in GERATHERM MEDICAL are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, GERATHERM MEDICAL unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Applied Materials and GERATHERM MEDICAL

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

The idea behind Applied Materials and GERATHERM MEDICAL 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.