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

0.93

Correlation Coefficient

Vanguard Short-term  Dodge Cox

Almost no diversification

The 3 months correlation between Vanguard and Dodge is 0.93. 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 Federal is expected to generate 0.44 times more return on investment than Dodge Cox. However, Vanguard Short Term Federal is 2.25 times less risky than Dodge Cox. It trades about 0.01 of its potential returns per unit of risk. Dodge Cox Global is currently generating about -0.04 per unit of risk. If you would invest  1,017  in Vanguard Short Term Federal on September 2, 2024 and sell it today you would earn a total of  1.00  from holding Vanguard Short Term Federal or generate 0.1% return on investment over 90 days.

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

Vanguard Short Term Federal  vs.  Dodge Cox Global

Vanguard Short Term

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard Short Term Federal has generated negative risk-adjusted returns adding no value to fund investors. 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

0 of 100

Very Weak

Over the last 90 days Dodge Cox Global has generated negative risk-adjusted returns adding no value to fund investors. 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.

Check out your portfolio center.

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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.