Correlation Between Capital World and Dodge Cox

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

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

Diversification Opportunities for Capital World and Dodge Cox

-0.07

Correlation Coefficient

Capital World  Dodge Cox

Good diversification

The 3 months correlation between Capital and Dodge is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Capital World Bond and Dodge Cox Emerging in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dodge Cox Emerging and Capital World 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 Capital World Bond 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 Emerging has no effect on the direction of Capital World i.e., Capital World and Dodge Cox go up and down completely randomly.

Pair Corralation between Capital World and Dodge Cox

Assuming the 90 days horizon Capital World Bond is expected to under-perform the Dodge Cox. But the mutual fund apears to be less risky and, when comparing its historical volatility, Capital World Bond is 2.68 times less risky than Dodge Cox. The mutual fund trades about -0.11 of its potential returns per unit of risk. The Dodge Cox Emerging is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  877.00  in Dodge Cox Emerging on September 4, 2024 and sell it today you would earn a total of  23.00  from holding Dodge Cox Emerging or generate 2.62% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Capital World Bond  vs.  Dodge Cox Emerging

Capital World Bond

Risk-Adjusted Performance

0 of 100

Very Weak

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

Dodge Cox Emerging

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Dodge Cox Emerging are ranked lower than 3 (%) 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 Capital World and Dodge Cox

The main advantage of trading using opposite Capital World and Dodge Cox positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Capital World 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 Capital World Bond and Dodge Cox Emerging 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.