Correlation Between Dropbox and Adobe Systems

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

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

Diversification Opportunities for Dropbox and Adobe Systems

-0.55

Correlation Coefficient

Dropbox  Adobe Systems

Excellent diversification

The 3 months correlation between Dropbox and Adobe is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Dropbox and Adobe Systems Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Adobe Systems and Dropbox 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 Dropbox are associated (or correlated) with Adobe Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Adobe Systems has no effect on the direction of Dropbox i.e., Dropbox and Adobe Systems go up and down completely randomly.

Pair Corralation between Dropbox and Adobe Systems

Considering the 90-day investment horizon Dropbox is expected to generate 0.83 times more return on investment than Adobe Systems. However, Dropbox is 1.2 times less risky than Adobe Systems. It trades about 0.11 of its potential returns per unit of risk. Adobe Systems Incorporated is currently generating about -0.08 per unit of risk. If you would invest  2,514  in Dropbox on August 30, 2024 and sell it today you would earn a total of  286.00  from holding Dropbox or generate 11.38% return on investment over 90 days.

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

Dropbox  vs.  Adobe Systems Incorporated

Dropbox

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Dropbox are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental drivers, Dropbox may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Adobe Systems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Adobe Systems Incorporated has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's fundamental drivers remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Dropbox and Adobe Systems

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

The idea behind Dropbox and Adobe Systems Incorporated 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.