Correlation Between Dodge Cox and Payden Core

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

By analyzing existing cross correlation between Dodge Income Fund and Payden E Bond, you can compare the effects of market volatilities on Dodge Cox and Payden Core 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 Payden Core. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dodge Cox and Payden Core.

Diversification Opportunities for Dodge Cox and Payden Core

0.96

Correlation Coefficient

Dodge Cox  Payden Core

Almost no diversification

The 3 months correlation between Dodge and Payden is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Dodge Income Fund and Payden E Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Payden E Bond 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 Income Fund are associated (or correlated) with Payden Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Payden E Bond has no effect on the direction of Dodge Cox i.e., Dodge Cox and Payden Core go up and down completely randomly.

Pair Corralation between Dodge Cox and Payden Core

Assuming the 90 days horizon Dodge Cox is expected to generate 1.64 times less return on investment than Payden Core. In addition to that, Dodge Cox is 1.29 times more volatile than Payden E Bond. It trades about 0.05 of its total potential returns per unit of risk. Payden E Bond is currently generating about 0.11 per unit of volatility. If you would invest  903.00  in Payden E Bond on December 28, 2024 and sell it today you would earn a total of  16.00  from holding Payden E Bond or generate 1.77% return on investment over 90 days.

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

Dodge Income Fund  vs.  Payden E Bond

Dodge Income

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Dodge Income Fund are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Dodge Cox is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Payden E Bond

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Payden E Bond are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Payden Core 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 Cox and Payden Core

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

The idea behind Dodge Income Fund and Payden E Bond 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.