Correlation Between Dodge Cox and High Yield

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

By analyzing existing cross correlation between Dodge Cox Stock and High Yield Fund R5, you can compare the effects of market volatilities on Dodge Cox and High Yield 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 High Yield. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dodge Cox and High Yield.

Diversification Opportunities for Dodge Cox and High Yield

0.79

Correlation Coefficient

Dodge Cox  High Yield

Poor diversification

The 3 months correlation between Dodge and High is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Dodge Cox Stock and High Yield Fund R5 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on High Yield Fund 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 Stock are associated (or correlated) with High Yield. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of High Yield Fund has no effect on the direction of Dodge Cox i.e., Dodge Cox and High Yield go up and down completely randomly.

Pair Corralation between Dodge Cox and High Yield

Assuming the 90 days horizon Dodge Cox Stock is expected to generate 3.82 times more return on investment than High Yield. However, Dodge Cox is 3.82 times more volatile than High Yield Fund R5. It trades about 0.07 of its potential returns per unit of risk. High Yield Fund R5 is currently generating about 0.16 per unit of risk. If you would invest  25,883  in Dodge Cox Stock on December 23, 2024 and sell it today you would earn a total of  824.00  from holding Dodge Cox Stock or generate 3.18% return on investment over 90 days.

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

Dodge Cox Stock  vs.  High Yield Fund R5

Dodge Cox Stock

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Dodge Cox Stock 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 Cox is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

High Yield Fund

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in High Yield Fund R5 are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, High Yield 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 High Yield

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

The idea behind Dodge Cox Stock and High Yield Fund R5 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.