Correlation Between Vanguard Short-term and Dodge Cox

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

By analyzing existing cross correlation between Vanguard Short Term Federal and Dodge Cox Global, you can compare the effects of market volatilities on Vanguard Short-term 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 Vanguard Short-term with a short position of Dodge Cox. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Short-term and Dodge Cox.

Diversification Opportunities for Vanguard Short-term and Dodge Cox

0.82

Correlation Coefficient

Vanguard Short-term  Dodge Cox

Very poor diversification

The 3 months correlation between Vanguard and Dodge is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Short Term Federal and Dodge Cox Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dodge Cox Global and Vanguard Short-term 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 Vanguard Short Term Federal 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 Global has no effect on the direction of Vanguard Short-term i.e., Vanguard Short-term and Dodge Cox go up and down completely randomly.

Pair Corralation between Vanguard Short-term and Dodge Cox

Assuming the 90 days horizon Vanguard Short-term is expected to generate 1.22 times less return on investment than Dodge Cox. But when comparing it to its historical volatility, Vanguard Short Term Federal is 2.35 times less risky than Dodge Cox. It trades about 0.22 of its potential returns per unit of risk. Dodge Cox Global is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  1,052  in Dodge Cox Global on December 30, 2024 and sell it today you would earn a total of  24.00  from holding Dodge Cox Global or generate 2.28% return on investment over 90 days.

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

Vanguard Short Term Federal  vs.  Dodge Cox Global

Vanguard Short Term

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Short Term Federal are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental drivers, Vanguard Short-term is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong essential 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 Vanguard Short-term and Dodge Cox

The main advantage of trading using opposite Vanguard Short-term and Dodge Cox positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Short-term 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 Vanguard Short Term Federal and Dodge Cox 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.