Correlation Between Dodge Balanced and Dodge Stock

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

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

Diversification Opportunities for Dodge Balanced and Dodge Stock

0.85

Correlation Coefficient

Dodge Balanced  Dodge Stock

Very poor diversification

The 3 months correlation between Dodge and Dodge is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Dodge Balanced Fund and Dodge Stock Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dodge Stock Fund and Dodge Balanced 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 Dodge Balanced Fund are associated (or correlated) with Dodge Stock. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dodge Stock Fund has no effect on the direction of Dodge Balanced i.e., Dodge Balanced and Dodge Stock go up and down completely randomly.

Pair Corralation between Dodge Balanced and Dodge Stock

Assuming the 90 days horizon Dodge Balanced Fund is expected to generate 0.65 times more return on investment than Dodge Stock. However, Dodge Balanced Fund is 1.54 times less risky than Dodge Stock. It trades about 0.12 of its potential returns per unit of risk. Dodge Stock Fund is currently generating about 0.06 per unit of risk. If you would invest  10,156  in Dodge Balanced Fund on December 29, 2024 and sell it today you would earn a total of  376.00  from holding Dodge Balanced Fund or generate 3.7% return on investment over 90 days.

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

Dodge Balanced Fund  vs.  Dodge Stock Fund

Dodge Balanced

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Dodge Balanced Fund are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental drivers, Dodge Balanced is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Dodge Stock Fund

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Dodge Stock Fund are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Dodge Stock is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Dodge Balanced and Dodge Stock

The main advantage of trading using opposite Dodge Balanced and Dodge Stock positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dodge Balanced position performs unexpectedly, Dodge Stock 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 Stock will offset losses from the drop in Dodge Stock's long position.

The idea behind Dodge Balanced Fund and Dodge Stock Fund 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.