Correlation Between Williams Sonoma and Cato

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

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

Diversification Opportunities for Williams Sonoma and Cato

0.27

Correlation Coefficient

Williams Sonoma  Cato

Modest diversification

The 3 months correlation between Williams and Cato is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Williams Sonoma and Cato Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cato and Williams Sonoma 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 Williams Sonoma 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 Williams Sonoma i.e., Williams Sonoma and Cato go up and down completely randomly.

Pair Corralation between Williams Sonoma and Cato

Considering the 90-day investment horizon Williams Sonoma is expected to under-perform the Cato. But the stock apears to be less risky and, when comparing its historical volatility, Williams Sonoma is 1.53 times less risky than Cato. The stock trades about -0.07 of its potential returns per unit of risk. The Cato Corporation is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  378.00  in Cato Corporation on December 28, 2024 and sell it today you would earn a total of  12.00  from holding Cato Corporation or generate 3.17% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Williams Sonoma  vs.  Cato Corp.

Williams Sonoma

Risk-Adjusted Performance

Very Weak

Over the last 90 days Williams Sonoma has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating 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.

Cato

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Cato Corporation are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting basic indicators, Cato may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Williams Sonoma and Cato

The main advantage of trading using opposite Williams Sonoma and Cato positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Williams Sonoma 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 Williams Sonoma 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.