Correlation Between Cato and Ross Stores

Can any of the company-specific risk be diversified away by investing in both Cato and Ross 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 Ross 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 Ross Stores, you can compare the effects of market volatilities on Cato and Ross 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 Ross Stores. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cato and Ross Stores.

Diversification Opportunities for Cato and Ross Stores

-0.92

Correlation Coefficient

Cato  Ross Stores

Pay attention - limited upside

The 3 months correlation between Cato and Ross is -0.92. Overlapping area represents the amount of risk that can be diversified away by holding Cato Corp. and Ross Stores in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ross 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 Ross Stores. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ross Stores has no effect on the direction of Cato i.e., Cato and Ross Stores go up and down completely randomly.

Pair Corralation between Cato and Ross Stores

Given the investment horizon of 90 days Cato Corporation is expected to under-perform the Ross Stores. In addition to that, Cato is 2.27 times more volatile than Ross Stores. It trades about -0.03 of its total potential returns per unit of risk. Ross Stores is currently generating about 0.08 per unit of volatility. If you would invest  10,044  in Ross Stores on October 5, 2024 and sell it today you would earn a total of  5,391  from holding Ross Stores or generate 53.67% return on investment over 90 days.

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

Cato Corp.  vs.  Ross Stores

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 conflicting 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.

Ross Stores

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ross Stores are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting basic indicators, Ross Stores may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Cato and Ross Stores

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

The idea behind Cato Corporation and Ross 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.

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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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.