Correlation Between Vanguard Value and Dodge Cox

Can any of the company-specific risk be diversified away by investing in both Vanguard Value 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 Value 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 Value Index and Dodge Cox Stock, you can compare the effects of market volatilities on Vanguard Value 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 Value with a short position of Dodge Cox. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Value and Dodge Cox.

Diversification Opportunities for Vanguard Value and Dodge Cox

0.95

Correlation Coefficient

Vanguard Value  Dodge Cox

Almost no diversification

The 3 months correlation between Vanguard and Dodge is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Value Index 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 Vanguard Value 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 Value Index 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 Vanguard Value i.e., Vanguard Value and Dodge Cox go up and down completely randomly.

Pair Corralation between Vanguard Value and Dodge Cox

Assuming the 90 days horizon Vanguard Value Index is expected to generate 0.91 times more return on investment than Dodge Cox. However, Vanguard Value Index is 1.1 times less risky than Dodge Cox. It trades about 0.16 of its potential returns per unit of risk. Dodge Cox Stock is currently generating about 0.14 per unit of risk. If you would invest  6,634  in Vanguard Value Index on August 31, 2024 and sell it today you would earn a total of  438.00  from holding Vanguard Value Index or generate 6.6% return on investment over 90 days.

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

Vanguard Value Index  vs.  Dodge Cox Stock

Vanguard Value Index

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Value Index are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Vanguard Value may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Dodge Cox Stock

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Dodge Cox Stock are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Dodge Cox may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Vanguard Value and Dodge Cox

The main advantage of trading using opposite Vanguard Value and Dodge Cox positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Value 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 Value Index 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.