Correlation Between Dodge Cox and Diamond Hill

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

Diversification Opportunities for Dodge Cox and Diamond Hill

0.61

Correlation Coefficient

Dodge Cox  Diamond Hill

Poor diversification

The 3 months correlation between Dodge and Diamond is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Dodge Stock Fund and Diamond Hill Large in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diamond Hill Large and Dodge Cox 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 Diamond Hill. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diamond Hill Large has no effect on the direction of Dodge Cox i.e., Dodge Cox and Diamond Hill go up and down completely randomly.

Pair Corralation between Dodge Cox and Diamond Hill

Assuming the 90 days horizon Dodge Stock Fund is expected to generate 0.98 times more return on investment than Diamond Hill. However, Dodge Stock Fund is 1.02 times less risky than Diamond Hill. It trades about 0.06 of its potential returns per unit of risk. Diamond Hill Large is currently generating about 0.05 per unit of risk. If you would invest  19,244  in Dodge Stock Fund on March 5, 2024 and sell it today you would earn a total of  6,529  from holding Dodge Stock Fund or generate 33.93% return on investment over 90 days.

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

Dodge Stock Fund  vs.  Diamond Hill Large

Dodge Stock Fund

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Dodge Stock Fund are ranked lower than 8 (%) 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.

Diamond Hill Large

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Diamond Hill Large are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Diamond Hill 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 Cox and Diamond Hill

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

The idea behind Dodge Stock Fund and Diamond Hill Large 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.