Correlation Between Stem and Dropbox

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

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

Diversification Opportunities for Stem and Dropbox

-0.16

Correlation Coefficient

Stem  Dropbox

Good diversification

The 3 months correlation between Stem and Dropbox is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Stem Inc and Dropbox in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dropbox and Stem 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 Stem Inc are associated (or correlated) with Dropbox. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dropbox has no effect on the direction of Stem i.e., Stem and Dropbox go up and down completely randomly.

Pair Corralation between Stem and Dropbox

Given the investment horizon of 90 days Stem is expected to generate 1.95 times less return on investment than Dropbox. In addition to that, Stem is 5.83 times more volatile than Dropbox. It trades about 0.02 of its total potential returns per unit of risk. Dropbox is currently generating about 0.21 per unit of volatility. If you would invest  2,459  in Dropbox on September 13, 2024 and sell it today you would earn a total of  545.00  from holding Dropbox or generate 22.16% return on investment over 90 days.

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

Stem Inc  vs.  Dropbox

Stem Inc

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Stem Inc are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting technical and fundamental indicators, Stem may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Dropbox

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Dropbox are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental drivers, Dropbox showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Stem and Dropbox

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

The idea behind Stem Inc and Dropbox 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.