Correlation Between Northern Technologies and Hawkins

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

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

Diversification Opportunities for Northern Technologies and Hawkins

0.27

Correlation Coefficient

Northern Technologies  Hawkins

Modest diversification

The 3 months correlation between Northern and Hawkins is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Northern Technologies and Hawkins in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hawkins and Northern Technologies 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 Northern Technologies are associated (or correlated) with Hawkins. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hawkins has no effect on the direction of Northern Technologies i.e., Northern Technologies and Hawkins go up and down completely randomly.

Pair Corralation between Northern Technologies and Hawkins

Given the investment horizon of 90 days Northern Technologies is expected to under-perform the Hawkins. But the stock apears to be less risky and, when comparing its historical volatility, Northern Technologies is 1.39 times less risky than Hawkins. The stock trades about -0.18 of its potential returns per unit of risk. The Hawkins is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest  12,344  in Hawkins on December 29, 2024 and sell it today you would lose (1,688) from holding Hawkins or give up 13.67% of portfolio value over 90 days.

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

Northern Technologies  vs.  Hawkins

Northern Technologies

Risk-Adjusted Performance

Very Weak

Over the last 90 days Northern Technologies has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's forward indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Hawkins

Risk-Adjusted Performance

Very Weak

Over the last 90 days Hawkins has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's forward-looking signals remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Northern Technologies and Hawkins

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

The idea behind Northern Technologies and Hawkins 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.