Correlation Between Dodge Cox and Bridge Builder

Can any of the company-specific risk be diversified away by investing in both Dodge Cox and Bridge Builder 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 Bridge Builder 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 Bridge Builder Large, you can compare the effects of market volatilities on Dodge Cox and Bridge Builder 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 Bridge Builder. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dodge Cox and Bridge Builder.

Diversification Opportunities for Dodge Cox and Bridge Builder

0.48

Correlation Coefficient

Dodge Cox  Bridge Builder

Very weak diversification

The 3 months correlation between Dodge and Bridge is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Dodge Cox Stock and Bridge Builder Large in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bridge Builder Large 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 Bridge Builder. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bridge Builder Large has no effect on the direction of Dodge Cox i.e., Dodge Cox and Bridge Builder go up and down completely randomly.

Pair Corralation between Dodge Cox and Bridge Builder

Assuming the 90 days horizon Dodge Cox Stock is expected to generate 0.71 times more return on investment than Bridge Builder. However, Dodge Cox Stock is 1.41 times less risky than Bridge Builder. It trades about 0.06 of its potential returns per unit of risk. Bridge Builder Large is currently generating about -0.07 per unit of risk. If you would invest  25,683  in Dodge Cox Stock on December 29, 2024 and sell it today you would earn a total of  786.00  from holding Dodge Cox Stock or generate 3.06% return on investment over 90 days.

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

Dodge Cox Stock  vs.  Bridge Builder Large

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.

Bridge Builder Large

Risk-Adjusted Performance

Very Weak

Over the last 90 days Bridge Builder Large has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong essential indicators, Bridge Builder 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 Bridge Builder

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

The idea behind Dodge Cox Stock and Bridge Builder Large 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .