Correlation Between Prudential Jennison and Dodge Cox
Can any of the company-specific risk be diversified away by investing in both Prudential Jennison 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 Prudential Jennison and Dodge Cox into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Prudential Jennison Financial and Dodge Cox Stock, you can compare the effects of market volatilities on Prudential Jennison 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 Prudential Jennison with a short position of Dodge Cox. Check out your portfolio center. Please also check ongoing floating volatility patterns of Prudential Jennison and Dodge Cox.
Diversification Opportunities for Prudential Jennison and Dodge Cox
0.76 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Prudential and Dodge is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Prudential Jennison Financial 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 Prudential Jennison 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 Prudential Jennison Financial 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 Prudential Jennison i.e., Prudential Jennison and Dodge Cox go up and down completely randomly.
Pair Corralation between Prudential Jennison and Dodge Cox
Assuming the 90 days horizon Prudential Jennison Financial is expected to under-perform the Dodge Cox. But the mutual fund apears to be less risky and, when comparing its historical volatility, Prudential Jennison Financial is 1.1 times less risky than Dodge Cox. The mutual fund trades about -0.45 of its potential returns per unit of risk. The Dodge Cox Stock is currently generating about -0.32 of returns per unit of risk over similar time horizon. If you would invest 28,656 in Dodge Cox Stock on September 25, 2024 and sell it today you would lose (2,888) from holding Dodge Cox Stock or give up 10.08% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Prudential Jennison Financial vs. Dodge Cox Stock
Performance |
| Timeline |
| Prudential Jennison |
| Dodge Cox Stock |
Prudential Jennison and Dodge Cox Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Prudential Jennison and Dodge Cox
The main advantage of trading using opposite Prudential Jennison and Dodge Cox positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Prudential Jennison 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 Prudential Jennison Financial 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.
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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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..
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