Correlation Between Dodge Cox and Franklin Equity

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

Diversification Opportunities for Dodge Cox and Franklin Equity

0.94

Correlation Coefficient

Dodge Cox  Franklin Equity

Almost no diversification

The 3 months correlation between Dodge and Franklin is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Dodge Cox Stock and Franklin Equity Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Equity Income 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 Franklin Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Equity Income has no effect on the direction of Dodge Cox i.e., Dodge Cox and Franklin Equity go up and down completely randomly.

Pair Corralation between Dodge Cox and Franklin Equity

Assuming the 90 days horizon Dodge Cox is expected to generate 1.17 times less return on investment than Franklin Equity. In addition to that, Dodge Cox is 1.17 times more volatile than Franklin Equity Income. It trades about 0.14 of its total potential returns per unit of risk. Franklin Equity Income is currently generating about 0.2 per unit of volatility. If you would invest  3,338  in Franklin Equity Income on September 1, 2024 and sell it today you would earn a total of  263.00  from holding Franklin Equity Income or generate 7.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.44%
Values	Daily Returns

Dodge Cox Stock  vs.  Franklin Equity Income

Dodge Cox Stock

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dodge Cox Stock are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Dodge Cox may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Franklin Equity Income

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Equity Income are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Franklin Equity may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Dodge Cox and Franklin Equity

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

The idea behind Dodge Cox Stock and Franklin Equity Income 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.