Correlation Between Dow Jones and Dodge Cox

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

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

Diversification Opportunities for Dow Jones and Dodge Cox

0.96

Correlation Coefficient

Dow Jones  Dodge Cox

Almost no diversification

The 3 months correlation between Dow and Dodge is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial 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 Dow Jones 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 Dow Jones Industrial 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 Dow Jones i.e., Dow Jones and Dodge Cox go up and down completely randomly.

Pair Corralation between Dow Jones and Dodge Cox

Assuming the 90 days horizon Dow Jones Industrial is expected to generate 1.05 times more return on investment than Dodge Cox. However, Dow Jones is 1.05 times more volatile than Dodge Cox Stock. It trades about 0.17 of its potential returns per unit of risk. Dodge Cox Stock is currently generating about 0.13 per unit of risk. If you would invest  9,197  in Dow Jones Industrial on September 12, 2024 and sell it today you would earn a total of  724.00  from holding Dow Jones Industrial or generate 7.87% return on investment over 90 days.

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

Dow Jones Industrial  vs.  Dodge Cox Stock

Dow Jones Industrial

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dow Jones Industrial are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward-looking signals, Dow Jones may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Dodge Cox Stock

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dodge Cox Stock are ranked lower than 10 (%) 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.

Pair Trading with Dow Jones and Dodge Cox

The main advantage of trading using opposite Dow Jones and Dodge Cox positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones 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 Dow Jones Industrial 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.