Correlation Between Cato and Citi Trends

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

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

Diversification Opportunities for Cato and Citi Trends

-0.69

Correlation Coefficient

Cato  Citi Trends

Excellent diversification

The 3 months correlation between Cato and Citi is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Cato Corp. and Citi Trends in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Citi Trends 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 Citi Trends. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Citi Trends has no effect on the direction of Cato i.e., Cato and Citi Trends go up and down completely randomly.

Pair Corralation between Cato and Citi Trends

Given the investment horizon of 90 days Cato Corporation is expected to under-perform the Citi Trends. In addition to that, Cato is 1.45 times more volatile than Citi Trends. It trades about -0.14 of its total potential returns per unit of risk. Citi Trends is currently generating about 0.22 per unit of volatility. If you would invest  1,779  in Citi Trends on November 19, 2024 and sell it today you would earn a total of  1,040  from holding Citi Trends or generate 58.46% return on investment over 90 days.

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

Cato Corp.  vs.  Citi Trends

Cato

Risk-Adjusted Performance

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

Citi Trends

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Citi Trends are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting basic indicators, Citi Trends displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cato and Citi Trends

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

The idea behind Cato Corporation and Citi Trends 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.