Correlation Between Ross Stores and Cato

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

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

Diversification Opportunities for Ross Stores and Cato

0.8

Correlation Coefficient

Ross Stores  Cato

Very poor diversification

The 3 months correlation between Ross and Cato is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Ross Stores and Cato Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cato and Ross Stores 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 Ross Stores are associated (or correlated) with Cato. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cato has no effect on the direction of Ross Stores i.e., Ross Stores and Cato go up and down completely randomly.

Pair Corralation between Ross Stores and Cato

Given the investment horizon of 90 days Ross Stores is expected to generate 4.81 times less return on investment than Cato. But when comparing it to its historical volatility, Ross Stores is 1.81 times less risky than Cato. It trades about 0.05 of its potential returns per unit of risk. Cato Corporation is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  520.00  in Cato Corporation on March 10, 2024 and sell it today you would earn a total of  88.00  from holding Cato Corporation or generate 16.92% return on investment over 90 days.

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

Ross Stores  vs.  Cato Corp.

Ross Stores

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ross Stores has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Ross Stores is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Cato

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cato Corporation has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Cato is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Ross Stores and Cato

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

The idea behind Ross Stores and Cato Corporation 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.