Correlation Between Wayfair and Cato

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

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

Diversification Opportunities for Wayfair and Cato

-0.37

Correlation Coefficient

Wayfair  Cato

Very good diversification

The 3 months correlation between Wayfair and Cato is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Wayfair and Cato Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cato and Wayfair 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 Wayfair 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 Wayfair i.e., Wayfair and Cato go up and down completely randomly.

Pair Corralation between Wayfair and Cato

Taking into account the 90-day investment horizon Wayfair is expected to generate 0.92 times more return on investment than Cato. However, Wayfair is 1.09 times less risky than Cato. It trades about -0.01 of its potential returns per unit of risk. Cato Corporation is currently generating about -0.03 per unit of risk. If you would invest  5,273  in Wayfair on September 26, 2024 and sell it today you would lose (798.00) from holding Wayfair or give up 15.13% of portfolio value over 90 days.

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

Wayfair  vs.  Cato Corp.

Wayfair

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Wayfair has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated 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 latest conflicting performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Wayfair and Cato

The main advantage of trading using opposite Wayfair and Cato positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wayfair 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 Wayfair 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.