Correlation Between Zumiez and Cato

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

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

Diversification Opportunities for Zumiez and Cato

-0.51

Correlation Coefficient

Zumiez  Cato

Excellent diversification

The 3 months correlation between Zumiez and Cato is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Zumiez Inc and Cato Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cato and Zumiez 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 Zumiez Inc 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 Zumiez i.e., Zumiez and Cato go up and down completely randomly.

Pair Corralation between Zumiez and Cato

Given the investment horizon of 90 days Zumiez Inc is expected to generate 0.61 times more return on investment than Cato. However, Zumiez Inc is 1.63 times less risky than Cato. It trades about -0.07 of its potential returns per unit of risk. Cato Corporation is currently generating about -0.08 per unit of risk. If you would invest  2,774  in Zumiez Inc on August 30, 2024 and sell it today you would lose (480.00) from holding Zumiez Inc or give up 17.3% of portfolio value over 90 days.

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

Zumiez Inc  vs.  Cato Corp.

Zumiez Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Zumiez Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's primary indicators remain fairly strong which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long term up-swing 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 unfluctuating performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in December 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Zumiez and Cato

The main advantage of trading using opposite Zumiez and Cato positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Zumiez 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 Zumiez Inc 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 Transaction History module to view history of all your transactions and understand their impact on performance.