Correlation Between Rational Strategic and Dodge Cox

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

By analyzing existing cross correlation between Rational Strategic Allocation and Dodge Cox Stock, you can compare the effects of market volatilities on Rational Strategic and Dodge Cox 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 Rational Strategic with a short position of Dodge Cox. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rational Strategic and Dodge Cox.

Diversification Opportunities for Rational Strategic and Dodge Cox

0.4

Correlation Coefficient

Rational Strategic  Dodge Cox

Very weak diversification

The 3 months correlation between Rational and Dodge is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Rational Strategic Allocation and Dodge Cox Stock in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dodge Cox Stock and Rational Strategic 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 Rational Strategic Allocation are associated (or correlated) with Dodge Cox. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dodge Cox Stock has no effect on the direction of Rational Strategic i.e., Rational Strategic and Dodge Cox go up and down completely randomly.

Pair Corralation between Rational Strategic and Dodge Cox

Assuming the 90 days horizon Rational Strategic is expected to generate 1.29 times less return on investment than Dodge Cox. In addition to that, Rational Strategic is 2.09 times more volatile than Dodge Cox Stock. It trades about 0.05 of its total potential returns per unit of risk. Dodge Cox Stock is currently generating about 0.14 per unit of volatility. If you would invest  20,112  in Dodge Cox Stock on December 3, 2024 and sell it today you would earn a total of  7,186  from holding Dodge Cox Stock or generate 35.73% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.7%
Values	Daily Returns

Rational Strategic Allocation  vs.  Dodge Cox Stock

Rational Strategic

Risk-Adjusted Performance

Very Weak

Over the last 90 days Rational Strategic Allocation has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Dodge Cox Stock

Risk-Adjusted Performance

Weak

Over the last 90 days Dodge Cox Stock has generated negative risk-adjusted returns adding no value to fund investors. 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.

Pair Trading with Rational Strategic and Dodge Cox

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

The idea behind Rational Strategic Allocation and Dodge Cox Stock 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.