Correlation Between Cato and Guess

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

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

Diversification Opportunities for Cato and Guess

0.87

Correlation Coefficient

Cato  Guess

Very poor diversification

The 3 months correlation between Cato and Guess is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Cato Corp. and Guess Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guess Inc 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 Guess. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guess Inc has no effect on the direction of Cato i.e., Cato and Guess go up and down completely randomly.

Pair Corralation between Cato and Guess

Given the investment horizon of 90 days Cato Corporation is expected to under-perform the Guess. But the stock apears to be less risky and, when comparing its historical volatility, Cato Corporation is 1.5 times less risky than Guess. The stock trades about -0.05 of its potential returns per unit of risk. The Guess Inc is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  1,366  in Guess Inc on December 27, 2024 and sell it today you would lose (195.00) from holding Guess Inc or give up 14.28% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.36%
Values	Daily Returns

Cato Corp.  vs.  Guess Inc

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 latest conflicting performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Guess Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Guess Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Cato and Guess

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

The idea behind Cato Corporation and Guess Inc 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.