Correlation Between Dodge Cox and Longleaf Partners

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

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

Diversification Opportunities for Dodge Cox and Longleaf Partners

0.36

Correlation Coefficient

Dodge Cox  Longleaf Partners

Weak diversification

The 3 months correlation between Dodge and Longleaf is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Dodge Cox Global and Longleaf Partners Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Longleaf Partners Global 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 Global are associated (or correlated) with Longleaf Partners. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Longleaf Partners Global has no effect on the direction of Dodge Cox i.e., Dodge Cox and Longleaf Partners go up and down completely randomly.

Pair Corralation between Dodge Cox and Longleaf Partners

Assuming the 90 days horizon Dodge Cox Global is expected to generate 0.99 times more return on investment than Longleaf Partners. However, Dodge Cox Global is 1.01 times less risky than Longleaf Partners. It trades about 0.14 of its potential returns per unit of risk. Longleaf Partners Global is currently generating about -0.01 per unit of risk. If you would invest  1,370  in Dodge Cox Global on December 29, 2024 and sell it today you would earn a total of  90.00  from holding Dodge Cox Global or generate 6.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

Dodge Cox Global  vs.  Longleaf Partners Global

Dodge Cox Global

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Dodge Cox Global are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Dodge Cox may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Longleaf Partners Global

Risk-Adjusted Performance

Very Weak

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

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

The idea behind Dodge Cox Global and Longleaf Partners Global 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 Global Correlations module to find global opportunities by holding instruments from different markets.