Correlation Between Dodge Cox and Multifactor Equity

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

Diversification Opportunities for Dodge Cox and Multifactor Equity

0.9

Correlation Coefficient

Dodge Cox  Multifactor Equity

Almost no diversification

The 3 months correlation between Dodge and Multifactor is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Dodge Cox Stock and Multifactor Equity Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Multifactor Equity 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 Multifactor Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Multifactor Equity has no effect on the direction of Dodge Cox i.e., Dodge Cox and Multifactor Equity go up and down completely randomly.

Pair Corralation between Dodge Cox and Multifactor Equity

Assuming the 90 days horizon Dodge Cox Stock is expected to generate 0.34 times more return on investment than Multifactor Equity. However, Dodge Cox Stock is 2.9 times less risky than Multifactor Equity. It trades about -0.07 of its potential returns per unit of risk. Multifactor Equity Fund is currently generating about -0.09 per unit of risk. If you would invest  27,188  in Dodge Cox Stock on September 24, 2024 and sell it today you would lose (1,420) from holding Dodge Cox Stock or give up 5.22% of portfolio value over 90 days.

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

Dodge Cox Stock  vs.  Multifactor Equity Fund

Dodge Cox Stock

Risk-Adjusted Performance

0 of 100

Very 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.

Multifactor Equity

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Multifactor Equity Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's fundamental indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Dodge Cox and Multifactor Equity

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

The idea behind Dodge Cox Stock and Multifactor Equity Fund 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.