Correlation Between Dodge Cox and American Mutual

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Can any of the company-specific risk be diversified away by investing in both Dodge Cox and American Mutual 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 American Mutual into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dodge Cox Stock and American Mutual Fund, you can compare the effects of market volatilities on Dodge Cox and American Mutual 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 American Mutual. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dodge Cox and American Mutual.

Diversification Opportunities for Dodge Cox and American Mutual

0.92
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Dodge and American is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Dodge Cox Stock and American Mutual Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Mutual 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 Cox Stock are associated (or correlated) with American Mutual. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Mutual has no effect on the direction of Dodge Cox i.e., Dodge Cox and American Mutual go up and down completely randomly.

Pair Corralation between Dodge Cox and American Mutual

Assuming the 90 days horizon Dodge Cox Stock is expected to generate 1.16 times more return on investment than American Mutual. However, Dodge Cox is 1.16 times more volatile than American Mutual Fund. It trades about 0.21 of its potential returns per unit of risk. American Mutual Fund is currently generating about 0.24 per unit of risk. If you would invest  25,609  in Dodge Cox Stock on April 22, 2024 and sell it today you would earn a total of  567.00  from holding Dodge Cox Stock or generate 2.21% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Dodge Cox Stock  vs.  American Mutual Fund

 Performance 
       Timeline  
Dodge Cox Stock 

Risk-Adjusted Performance

10 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Dodge Cox Stock are ranked lower than 10 (%) 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.
American Mutual 

Risk-Adjusted Performance

16 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in American Mutual Fund are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, American Mutual may actually be approaching a critical reversion point that can send shares even higher in August 2024.

Dodge Cox and American Mutual Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Dodge Cox and American Mutual

The main advantage of trading using opposite Dodge Cox and American Mutual positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dodge Cox position performs unexpectedly, American Mutual 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 American Mutual will offset losses from the drop in American Mutual's long position.
The idea behind Dodge Cox Stock and American Mutual 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.
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.

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