Correlation Between Home Depot and Cato

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

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

Diversification Opportunities for Home Depot and Cato

-0.34

Correlation Coefficient

Home Depot  Cato

Very good diversification

The 3 months correlation between Home and Cato is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Cato Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cato and Home Depot 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 Home Depot 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 Home Depot i.e., Home Depot and Cato go up and down completely randomly.

Pair Corralation between Home Depot and Cato

Allowing for the 90-day total investment horizon Home Depot is expected to generate 0.38 times more return on investment than Cato. However, Home Depot is 2.65 times less risky than Cato. It trades about 0.23 of its potential returns per unit of risk. Cato Corporation is currently generating about 0.0 per unit of risk. If you would invest  39,245  in Home Depot on October 22, 2024 and sell it today you would earn a total of  1,693  from holding Home Depot or generate 4.31% return on investment over 90 days.

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

Home Depot  vs.  Cato Corp.

Home Depot

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Home Depot are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Home Depot is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

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 Home Depot and Cato

The main advantage of trading using opposite Home Depot and Cato positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Depot 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 Home Depot 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.