Correlation Between Buckle and Cato
Can any of the company-specific risk be diversified away by investing in both Buckle 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 Buckle and Cato into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Buckle Inc and Cato Corporation, you can compare the effects of market volatilities on Buckle 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 Buckle with a short position of Cato. Check out your portfolio center. Please also check ongoing floating volatility patterns of Buckle and Cato.
Diversification Opportunities for Buckle and Cato
Excellent diversification
The 3 months correlation between Buckle and Cato is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Buckle Inc and Cato Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cato and Buckle 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 Buckle 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 Buckle i.e., Buckle and Cato go up and down completely randomly.
Pair Corralation between Buckle and Cato
Considering the 90-day investment horizon Buckle Inc is expected to under-perform the Cato. But the stock apears to be less risky and, when comparing its historical volatility, Buckle Inc is 1.95 times less risky than Cato. The stock trades about -0.38 of its potential returns per unit of risk. The Cato Corporation is currently generating about -0.14 of returns per unit of risk over similar time horizon. If you would invest 378.00 in Cato Corporation on November 18, 2024 and sell it today you would lose (32.00) from holding Cato Corporation or give up 8.47% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Buckle Inc vs. Cato Corp.
Performance |
| Timeline |
| Buckle Inc |
| Cato |
Buckle and Cato Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Buckle and Cato
The main advantage of trading using opposite Buckle and Cato positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Buckle 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 Buckle 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.Check out your portfolio center.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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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