Correlation Between Cato and Buckle
Can any of the company-specific risk be diversified away by investing in both Cato and Buckle 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 Cato and Buckle into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cato Corporation and Buckle Inc, you can compare the effects of market volatilities on Cato and Buckle 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 Cato with a short position of Buckle. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cato and Buckle.
Diversification Opportunities for Cato and Buckle
Excellent diversification
The 3 months correlation between Cato and Buckle is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Cato Corp. and Buckle Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Buckle Inc and Cato 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 Cato Corporation are associated (or correlated) with Buckle. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Buckle Inc has no effect on the direction of Cato i.e., Cato and Buckle go up and down completely randomly.
Pair Corralation between Cato and Buckle
Given the investment horizon of 90 days Cato Corporation is expected to generate 1.95 times more return on investment than Buckle. However, Cato is 1.95 times more volatile than Buckle Inc. It trades about -0.14 of its potential returns per unit of risk. Buckle Inc is currently generating about -0.38 per unit of risk. 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 |
Cato Corp. vs. Buckle Inc
Performance |
| Timeline |
| Cato |
| Buckle Inc |
Cato and Buckle Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cato and Buckle
The main advantage of trading using opposite Cato and Buckle positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cato position performs unexpectedly, Buckle 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 Buckle will offset losses from the drop in Buckle's long position.The idea behind Cato Corporation and Buckle Inc 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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