Correlation Between GM and Dodge Cox
Can any of the company-specific risk be diversified away by investing in both GM 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 GM and Dodge Cox into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Dodge Cox Income, you can compare the effects of market volatilities on GM 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 GM with a short position of Dodge Cox. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Dodge Cox.
Diversification Opportunities for GM and Dodge Cox
Pay attention - limited upside
The 3 months correlation between GM and Dodge is -0.84. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Dodge Cox Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dodge Cox Income and GM 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 General Motors 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 Income has no effect on the direction of GM i.e., GM and Dodge Cox go up and down completely randomly.
Pair Corralation between GM and Dodge Cox
Allowing for the 90-day total investment horizon General Motors is expected to generate 6.36 times more return on investment than Dodge Cox. However, GM is 6.36 times more volatile than Dodge Cox Income. It trades about 0.12 of its potential returns per unit of risk. Dodge Cox Income is currently generating about 0.1 per unit of risk. If you would invest 4,287 in General Motors on August 26, 2024 and sell it today you would earn a total of 1,566 from holding General Motors or generate 36.53% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. Dodge Cox Income
Performance |
| Timeline |
| General Motors |
| Dodge Cox Income |
GM and Dodge Cox Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Dodge Cox
The main advantage of trading using opposite GM and Dodge Cox positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM 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 General Motors and Dodge Cox Income 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.| Dodge Cox vs. Old Westbury Short Term | Dodge Cox vs. Guggenheim Long Short | Dodge Cox vs. Siit Ultra Short | Dodge Cox vs. Ab Select Longshort |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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