Correlation Between Microsoft and Northern Technologies

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

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

Diversification Opportunities for Microsoft and Northern Technologies

0.54

Correlation Coefficient

Microsoft  Northern Technologies

Very weak diversification

The 3 months correlation between Microsoft and Northern is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Northern Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Technologies 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 Northern Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Technologies has no effect on the direction of Microsoft i.e., Microsoft and Northern Technologies go up and down completely randomly.

Pair Corralation between Microsoft and Northern Technologies

Given the investment horizon of 90 days Microsoft is expected to generate 0.29 times more return on investment than Northern Technologies. However, Microsoft is 3.4 times less risky than Northern Technologies. It trades about 0.37 of its potential returns per unit of risk. Northern Technologies is currently generating about 0.05 per unit of risk. If you would invest  43,537  in Microsoft on May 3, 2025 and sell it today you would earn a total of  9,813  from holding Microsoft or generate 22.54% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.39%
Values	Daily Returns

Microsoft  vs.  Northern Technologies

Microsoft

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 29 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, Microsoft unveiled solid returns over the last few months and may actually be approaching a breakup point.

Northern Technologies

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Technologies are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak forward indicators, Northern Technologies may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Pair Trading with Microsoft and Northern Technologies

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

The idea behind Microsoft and Northern Technologies 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.