Correlation Between Dodge Cox and Invesco Balanced-risk

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

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

Diversification Opportunities for Dodge Cox and Invesco Balanced-risk

0.78

Correlation Coefficient

Dodge Cox  Invesco Balanced-risk

Poor diversification

The 3 months correlation between Dodge and Invesco is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Dodge Cox Emerging and Invesco Balanced Risk Modity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Balanced Risk and Dodge Cox 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 Cox Emerging are associated (or correlated) with Invesco Balanced-risk. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Balanced Risk has no effect on the direction of Dodge Cox i.e., Dodge Cox and Invesco Balanced-risk go up and down completely randomly.

Pair Corralation between Dodge Cox and Invesco Balanced-risk

Assuming the 90 days horizon Dodge Cox Emerging is expected to under-perform the Invesco Balanced-risk. But the mutual fund apears to be less risky and, when comparing its historical volatility, Dodge Cox Emerging is 1.36 times less risky than Invesco Balanced-risk. The mutual fund trades about -0.27 of its potential returns per unit of risk. The Invesco Balanced Risk Modity is currently generating about -0.17 of returns per unit of risk over similar time horizon. If you would invest  666.00  in Invesco Balanced Risk Modity on October 5, 2024 and sell it today you would lose (28.00) from holding Invesco Balanced Risk Modity or give up 4.2% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.24%
Values	Daily Returns

Dodge Cox Emerging  vs.  Invesco Balanced Risk Modity

Dodge Cox Emerging

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dodge Cox Emerging has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's technical and fundamental indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Invesco Balanced Risk

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Invesco Balanced Risk Modity has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Dodge Cox and Invesco Balanced-risk

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

The idea behind Dodge Cox Emerging and Invesco Balanced Risk Modity 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.