Correlation Between Dodge Stock and Dodge Balanced

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

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

Diversification Opportunities for Dodge Stock and Dodge Balanced

0.98

Correlation Coefficient

Dodge Stock  Dodge Balanced

Almost no diversification

The 3 months correlation between Dodge and Dodge is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Dodge Stock Fund and Dodge Balanced Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dodge Balanced and Dodge Stock 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 Stock Fund are associated (or correlated) with Dodge Balanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dodge Balanced has no effect on the direction of Dodge Stock i.e., Dodge Stock and Dodge Balanced go up and down completely randomly.

Pair Corralation between Dodge Stock and Dodge Balanced

Assuming the 90 days horizon Dodge Stock Fund is expected to under-perform the Dodge Balanced. In addition to that, Dodge Stock is 1.34 times more volatile than Dodge Balanced Fund. It trades about -0.03 of its total potential returns per unit of risk. Dodge Balanced Fund is currently generating about -0.01 per unit of volatility. If you would invest  10,341  in Dodge Balanced Fund on February 8, 2024 and sell it today you would lose (13.00) from holding Dodge Balanced Fund or give up 0.13% of portfolio value over 90 days.

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

Dodge Stock Fund  vs.  Dodge Balanced Fund

Dodge Stock Fund

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Dodge Stock Fund are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Dodge Stock is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Dodge Balanced

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dodge Balanced Fund are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental drivers, Dodge Balanced is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Dodge Stock and Dodge Balanced

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

The idea behind Dodge Stock Fund and Dodge Balanced 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.