Correlation Between Cato and Next PLC

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

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

Diversification Opportunities for Cato and Next PLC

-0.43

Correlation Coefficient

Cato  Next PLC

Very good diversification

The 3 months correlation between Cato and Next is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Cato Corp. and Next PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Next PLC ADR 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 Next PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Next PLC ADR has no effect on the direction of Cato i.e., Cato and Next PLC go up and down completely randomly.

Pair Corralation between Cato and Next PLC

Given the investment horizon of 90 days Cato Corporation is expected to under-perform the Next PLC. In addition to that, Cato is 2.0 times more volatile than Next PLC ADR. It trades about -0.11 of its total potential returns per unit of risk. Next PLC ADR is currently generating about -0.03 per unit of volatility. If you would invest  6,490  in Next PLC ADR on December 17, 2024 and sell it today you would lose (208.00) from holding Next PLC ADR or give up 3.2% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	85.0%
Values	Daily Returns

Cato Corp.  vs.  Next PLC ADR

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 April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Next PLC ADR

Risk-Adjusted Performance

Very Weak

Over the last 90 days Next PLC ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Next PLC is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Cato and Next PLC

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

The idea behind Cato Corporation and Next PLC ADR 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.