Correlation Between Gap, and Cato

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

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

Diversification Opportunities for Gap, and Cato

-0.88

Correlation Coefficient

Gap,  Cato

Pay attention - limited upside

The 3 months correlation between Gap, and Cato is -0.88. Overlapping area represents the amount of risk that can be diversified away by holding The Gap, and Cato Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cato and Gap, 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 The Gap, are associated (or correlated) with Cato. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cato has no effect on the direction of Gap, i.e., Gap, and Cato go up and down completely randomly.

Pair Corralation between Gap, and Cato

Considering the 90-day investment horizon The Gap, is expected to generate 1.17 times more return on investment than Cato. However, Gap, is 1.17 times more volatile than Cato Corporation. It trades about 0.08 of its potential returns per unit of risk. Cato Corporation is currently generating about -0.03 per unit of risk. If you would invest  906.00  in The Gap, on October 5, 2024 and sell it today you would earn a total of  1,455  from holding The Gap, or generate 160.6% return on investment over 90 days.

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

The Gap,  vs.  Cato Corp.

Gap,

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in The Gap, are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, Gap, reported solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with Gap, and Cato

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

The idea behind The Gap, and Cato Corporation 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.