Correlation Between Dropbox and DigitalOcean Holdings

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

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

Diversification Opportunities for Dropbox and DigitalOcean Holdings

-0.6

Correlation Coefficient

Dropbox  DigitalOcean Holdings

Excellent diversification

The 3 months correlation between Dropbox and DigitalOcean is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Dropbox and DigitalOcean Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DigitalOcean Holdings 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 DigitalOcean Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DigitalOcean Holdings has no effect on the direction of Dropbox i.e., Dropbox and DigitalOcean Holdings go up and down completely randomly.

Pair Corralation between Dropbox and DigitalOcean Holdings

Considering the 90-day investment horizon Dropbox is expected to generate 0.82 times more return on investment than DigitalOcean Holdings. However, Dropbox is 1.22 times less risky than DigitalOcean Holdings. It trades about 0.19 of its potential returns per unit of risk. DigitalOcean Holdings is currently generating about -0.19 per unit of risk. If you would invest  2,852  in Dropbox on September 25, 2024 and sell it today you would earn a total of  224.50  from holding Dropbox or generate 7.87% return on investment over 90 days.

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

Dropbox  vs.  DigitalOcean Holdings

Dropbox

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dropbox are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain fundamental drivers, Dropbox showed solid returns over the last few months and may actually be approaching a breakup point.

DigitalOcean Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DigitalOcean Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Dropbox and DigitalOcean Holdings

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

The idea behind Dropbox and DigitalOcean Holdings 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.