Correlation Between Microsoft and GERATHERM MEDICAL

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

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

Diversification Opportunities for Microsoft and GERATHERM MEDICAL

0.84

Correlation Coefficient

Microsoft  GERATHERM MEDICAL

Very poor diversification

The 3 months correlation between Microsoft and GERATHERM is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and GERATHERM MEDICAL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GERATHERM MEDICAL and Microsoft 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 Microsoft 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 Microsoft i.e., Microsoft and GERATHERM MEDICAL go up and down completely randomly.

Pair Corralation between Microsoft and GERATHERM MEDICAL

Assuming the 90 days trading horizon Microsoft is expected to generate 0.62 times more return on investment than GERATHERM MEDICAL. However, Microsoft is 1.6 times less risky than GERATHERM MEDICAL. It trades about 0.32 of its potential returns per unit of risk. GERATHERM MEDICAL is currently generating about 0.13 per unit of risk. If you would invest  31,942  in Microsoft on April 20, 2025 and sell it today you would earn a total of  11,958  from holding Microsoft or generate 37.44% return on investment over 90 days.

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

Microsoft  vs.  GERATHERM MEDICAL

Microsoft

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Microsoft unveiled 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 fragile basic indicators, GERATHERM MEDICAL unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and GERATHERM MEDICAL

The main advantage of trading using opposite Microsoft and GERATHERM MEDICAL positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft 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 Microsoft 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.