Correlation Between Next PLC and Cato

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

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

Diversification Opportunities for Next PLC and Cato

0.28

Correlation Coefficient

Next PLC  Cato

Modest diversification

The 3 months correlation between Next and Cato is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Next PLC ADR and Cato Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cato and Next PLC 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 Next PLC ADR 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 Next PLC i.e., Next PLC and Cato go up and down completely randomly.

Pair Corralation between Next PLC and Cato

Assuming the 90 days horizon Next PLC ADR is expected to generate 0.99 times more return on investment than Cato. However, Next PLC ADR is 1.01 times less risky than Cato. It trades about 0.05 of its potential returns per unit of risk. Cato Corporation is currently generating about -0.04 per unit of risk. If you would invest  3,879  in Next PLC ADR on October 27, 2024 and sell it today you would earn a total of  1,953  from holding Next PLC ADR or generate 50.35% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	91.5%
Values	Daily Returns

Next PLC ADR  vs.  Cato Corp.

Next PLC ADR

Risk-Adjusted Performance

0 of 100

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 latest fragile performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

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 Next PLC and Cato

The main advantage of trading using opposite Next PLC and Cato positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Next PLC 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 Next PLC ADR 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.