Correlation Between Abercrombie Fitch and Cato

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

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

Diversification Opportunities for Abercrombie Fitch and Cato

-0.42

Correlation Coefficient

Abercrombie Fitch  Cato

Very good diversification

The 3 months correlation between Abercrombie and Cato is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Abercrombie Fitch and Cato Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cato and Abercrombie Fitch 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 Abercrombie Fitch 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 Abercrombie Fitch i.e., Abercrombie Fitch and Cato go up and down completely randomly.

Pair Corralation between Abercrombie Fitch and Cato

Considering the 90-day investment horizon Abercrombie Fitch is expected to generate 2.25 times less return on investment than Cato. But when comparing it to its historical volatility, Abercrombie Fitch is 1.26 times less risky than Cato. It trades about 0.09 of its potential returns per unit of risk. Cato Corporation is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  341.00  in Cato Corporation on October 7, 2024 and sell it today you would earn a total of  42.00  from holding Cato Corporation or generate 12.32% return on investment over 90 days.

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

Abercrombie Fitch  vs.  Cato Corp.

Abercrombie Fitch

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Abercrombie Fitch are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Abercrombie Fitch reported solid returns over the last few months and may actually be approaching a breakup point.

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 weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Abercrombie Fitch and Cato

The main advantage of trading using opposite Abercrombie Fitch and Cato positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Abercrombie Fitch 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 Abercrombie Fitch 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.