Correlation Between Common Stock and Dodge Cox

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Can any of the company-specific risk be diversified away by investing in both Common Stock and Dodge Cox 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 Common Stock and Dodge Cox into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Common Stock Fund and Dodge Cox Stock, you can compare the effects of market volatilities on Common Stock and Dodge Cox 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 Common Stock with a short position of Dodge Cox. Check out your portfolio center. Please also check ongoing floating volatility patterns of Common Stock and Dodge Cox.

Diversification Opportunities for Common Stock and Dodge Cox

0.93
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Common and Dodge is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Common Stock Fund and Dodge Cox Stock in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dodge Cox Stock and Common Stock 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 Common Stock Fund are associated (or correlated) with Dodge Cox. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dodge Cox Stock has no effect on the direction of Common Stock i.e., Common Stock and Dodge Cox go up and down completely randomly.

Pair Corralation between Common Stock and Dodge Cox

Assuming the 90 days horizon Common Stock Fund is expected to generate 1.58 times more return on investment than Dodge Cox. However, Common Stock is 1.58 times more volatile than Dodge Cox Stock. It trades about 0.09 of its potential returns per unit of risk. Dodge Cox Stock is currently generating about 0.13 per unit of risk. If you would invest  3,568  in Common Stock Fund on September 12, 2024 and sell it today you would earn a total of  457.00  from holding Common Stock Fund or generate 12.81% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy99.2%
ValuesDaily Returns

Common Stock Fund  vs.  Dodge Cox Stock

 Performance 
       Timeline  
Common Stock 

Risk-Adjusted Performance

13 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Common Stock Fund are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Common Stock may actually be approaching a critical reversion point that can send shares even higher in January 2025.
Dodge Cox Stock 

Risk-Adjusted Performance

10 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Dodge Cox Stock are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Dodge Cox is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Common Stock and Dodge Cox Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Common Stock and Dodge Cox

The main advantage of trading using opposite Common Stock and Dodge Cox positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Common Stock position performs unexpectedly, Dodge Cox 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 Dodge Cox will offset losses from the drop in Dodge Cox's long position.
The idea behind Common Stock Fund and Dodge Cox Stock 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.
Check out your portfolio center.
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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.

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