Correlation Between Multi-manager Directional and Dodge Cox

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

By analyzing existing cross correlation between Multi Manager Directional Alternative and Dodge Cox Stock, you can compare the effects of market volatilities on Multi-manager Directional 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 Multi-manager Directional with a short position of Dodge Cox. Check out your portfolio center. Please also check ongoing floating volatility patterns of Multi-manager Directional and Dodge Cox.

Diversification Opportunities for Multi-manager Directional and Dodge Cox

0.8

Correlation Coefficient

Multi-manager Directional  Dodge Cox

Very poor diversification

The 3 months correlation between Multi-manager and Dodge is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Multi Manager Directional Alte 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 Multi-manager Directional 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 Multi Manager Directional Alternative 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 Multi-manager Directional i.e., Multi-manager Directional and Dodge Cox go up and down completely randomly.

Pair Corralation between Multi-manager Directional and Dodge Cox

Assuming the 90 days horizon Multi-manager Directional is expected to generate 1.44 times less return on investment than Dodge Cox. But when comparing it to its historical volatility, Multi Manager Directional Alternative is 1.26 times less risky than Dodge Cox. It trades about 0.23 of its potential returns per unit of risk. Dodge Cox Stock is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  26,051  in Dodge Cox Stock on October 25, 2024 and sell it today you would earn a total of  908.00  from holding Dodge Cox Stock or generate 3.49% return on investment over 90 days.

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

Multi Manager Directional Alte  vs.  Dodge Cox Stock

Multi-manager Directional

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Multi Manager Directional Alternative are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Multi-manager Directional is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Dodge Cox Stock

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Dodge Cox Stock are ranked lower than 4 (%) 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 recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Multi-manager Directional and Dodge Cox

The main advantage of trading using opposite Multi-manager Directional and Dodge Cox positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Multi-manager Directional 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 Multi Manager Directional Alternative 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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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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.