Correlation Between Morningstar Global and Dodge Cox

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

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

Diversification Opportunities for Morningstar Global and Dodge Cox

0.64

Correlation Coefficient

Morningstar Global  Dodge Cox

Poor diversification

The 3 months correlation between Morningstar and Dodge is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Morningstar Global Income 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 Morningstar Global 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 Morningstar Global Income 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 Morningstar Global i.e., Morningstar Global and Dodge Cox go up and down completely randomly.

Pair Corralation between Morningstar Global and Dodge Cox

Assuming the 90 days horizon Morningstar Global Income is expected to generate 0.29 times more return on investment than Dodge Cox. However, Morningstar Global Income is 3.49 times less risky than Dodge Cox. It trades about -0.12 of its potential returns per unit of risk. Dodge Cox Stock is currently generating about -0.06 per unit of risk. If you would invest  954.00  in Morningstar Global Income on September 29, 2024 and sell it today you would lose (24.00) from holding Morningstar Global Income or give up 2.52% of portfolio value over 90 days.

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

Morningstar Global Income  vs.  Dodge Cox Stock

Morningstar Global Income

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Morningstar Global Income has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Morningstar Global is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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.

Pair Trading with Morningstar Global and Dodge Cox

The main advantage of trading using opposite Morningstar Global and Dodge Cox positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Morningstar Global 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 Morningstar Global Income 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.