Correlation Between Cato and Burlington Stores

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

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

Diversification Opportunities for Cato and Burlington Stores

0.71

Correlation Coefficient

Cato  Burlington Stores

Poor diversification

The 3 months correlation between Cato and Burlington is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Cato Corp. and Burlington Stores in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Burlington Stores and Cato 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 Cato Corporation are associated (or correlated) with Burlington Stores. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Burlington Stores has no effect on the direction of Cato i.e., Cato and Burlington Stores go up and down completely randomly.

Pair Corralation between Cato and Burlington Stores

Given the investment horizon of 90 days Cato Corporation is expected to generate 1.37 times more return on investment than Burlington Stores. However, Cato is 1.37 times more volatile than Burlington Stores. It trades about 0.02 of its potential returns per unit of risk. Burlington Stores is currently generating about -0.08 per unit of risk. If you would invest  378.00  in Cato Corporation on December 29, 2024 and sell it today you would earn a total of  2.00  from holding Cato Corporation or generate 0.53% return on investment over 90 days.

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

Cato Corp.  vs.  Burlington Stores

Cato

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Cato Corporation are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

Burlington Stores

Risk-Adjusted Performance

Very Weak

Over the last 90 days Burlington Stores has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Cato and Burlington Stores

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

The idea behind Cato Corporation and Burlington Stores 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.