Correlation Between Dropbox and StoneCo

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

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

Diversification Opportunities for Dropbox and StoneCo

-0.38

Correlation Coefficient

Dropbox  StoneCo

Very good diversification

The 3 months correlation between Dropbox and StoneCo is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Dropbox and StoneCo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on StoneCo 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 StoneCo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of StoneCo has no effect on the direction of Dropbox i.e., Dropbox and StoneCo go up and down completely randomly.

Pair Corralation between Dropbox and StoneCo

Considering the 90-day investment horizon Dropbox is expected to under-perform the StoneCo. But the stock apears to be less risky and, when comparing its historical volatility, Dropbox is 1.25 times less risky than StoneCo. The stock trades about -0.05 of its potential returns per unit of risk. The StoneCo is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  891.00  in StoneCo on January 27, 2025 and sell it today you would earn a total of  484.00  from holding StoneCo or generate 54.32% return on investment over 90 days.

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

Dropbox  vs.  StoneCo

Dropbox

Risk-Adjusted Performance

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 latest weak performance, the Stock's fundamental drivers remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

StoneCo

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in StoneCo are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating basic indicators, StoneCo exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dropbox and StoneCo

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

The idea behind Dropbox and StoneCo 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.