Correlation Between High-yield Municipal and Dodge Cox

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

By analyzing existing cross correlation between High Yield Municipal Fund and Dodge Global Stock, you can compare the effects of market volatilities on High-yield Municipal 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 High-yield Municipal with a short position of Dodge Cox. Check out your portfolio center. Please also check ongoing floating volatility patterns of High-yield Municipal and Dodge Cox.

Diversification Opportunities for High-yield Municipal and Dodge Cox

0.59

Correlation Coefficient

High-yield Municipal  Dodge Cox

Very weak diversification

The 3 months correlation between High-yield and Dodge is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding High Yield Municipal Fund and Dodge Global Stock in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dodge Global Stock and High-yield Municipal 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 High Yield Municipal 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 Global Stock has no effect on the direction of High-yield Municipal i.e., High-yield Municipal and Dodge Cox go up and down completely randomly.

Pair Corralation between High-yield Municipal and Dodge Cox

Assuming the 90 days horizon High Yield Municipal Fund is expected to under-perform the Dodge Cox. But the mutual fund apears to be less risky and, when comparing its historical volatility, High Yield Municipal Fund is 2.91 times less risky than Dodge Cox. The mutual fund trades about -0.01 of its potential returns per unit of risk. The Dodge Global Stock is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  1,380  in Dodge Global Stock on December 27, 2024 and sell it today you would earn a total of  101.00  from holding Dodge Global Stock or generate 7.32% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.36%
Values	Daily Returns

High Yield Municipal Fund  vs.  Dodge Global Stock

High Yield Municipal

Risk-Adjusted Performance

Weak

Over the last 90 days High Yield Municipal Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, High-yield Municipal is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Dodge Global Stock

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dodge Global Stock are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Dodge Cox may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with High-yield Municipal and Dodge Cox

The main advantage of trading using opposite High-yield Municipal and Dodge Cox positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if High-yield Municipal 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 High Yield Municipal Fund and Dodge Global 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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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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.