Correlation Between Advance Auto and Cato

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

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

Diversification Opportunities for Advance Auto and Cato

0.67

Correlation Coefficient

Advance Auto  Cato

Poor diversification

The 3 months correlation between Advance and Cato is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Advance Auto Parts and Cato Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cato and Advance Auto 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 Advance Auto Parts 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 Advance Auto i.e., Advance Auto and Cato go up and down completely randomly.

Pair Corralation between Advance Auto and Cato

Considering the 90-day investment horizon Advance Auto Parts is expected to under-perform the Cato. But the stock apears to be less risky and, when comparing its historical volatility, Advance Auto Parts is 1.04 times less risky than Cato. The stock trades about -0.04 of its potential returns per unit of risk. The Cato Corporation is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  378.00  in Cato Corporation on December 28, 2024 and sell it today you would earn a total of  12.00  from holding Cato Corporation or generate 3.17% return on investment over 90 days.

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

Advance Auto Parts  vs.  Cato Corp.

Advance Auto Parts

Risk-Adjusted Performance

Very Weak

Over the last 90 days Advance Auto Parts has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest unfluctuating performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Cato

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Cato Corporation are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting basic indicators, Cato may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Advance Auto and Cato

The main advantage of trading using opposite Advance Auto and Cato positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Advance Auto 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 Advance Auto Parts 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.