Correlation Between Dropbox and Microsoft

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

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

Diversification Opportunities for Dropbox and Microsoft

-0.14

Correlation Coefficient

Dropbox  Microsoft

Good diversification

The 3 months correlation between Dropbox and Microsoft is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Dropbox and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft 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 Microsoft. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microsoft has no effect on the direction of Dropbox i.e., Dropbox and Microsoft go up and down completely randomly.

Pair Corralation between Dropbox and Microsoft

Considering the 90-day investment horizon Dropbox is expected to generate 0.9 times more return on investment than Microsoft. However, Dropbox is 1.11 times less risky than Microsoft. It trades about 0.02 of its potential returns per unit of risk. Microsoft is currently generating about -0.07 per unit of risk. If you would invest  2,328  in Dropbox on February 7, 2024 and sell it today you would earn a total of  9.00  from holding Dropbox or generate 0.39% return on investment over 90 days.

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

Dropbox  vs.  Microsoft

Dropbox

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dropbox has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's fundamental drivers remain fairly strong which may send shares a bit higher in June 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Microsoft

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Microsoft has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, Microsoft is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Dropbox and Microsoft

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

The idea behind Dropbox and Microsoft 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.