Correlation Between Cato and Designer Brands
Can any of the company-specific risk be diversified away by investing in both Cato and Designer Brands 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 Designer Brands into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cato Corporation and Designer Brands, you can compare the effects of market volatilities on Cato and Designer Brands 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 Designer Brands. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cato and Designer Brands.
Diversification Opportunities for Cato and Designer Brands
-0.64 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Cato and Designer is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Cato Corp. and Designer Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Designer Brands 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 Designer Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Designer Brands has no effect on the direction of Cato i.e., Cato and Designer Brands go up and down completely randomly.
Pair Corralation between Cato and Designer Brands
Given the investment horizon of 90 days Cato Corporation is expected to generate 2.02 times more return on investment than Designer Brands. However, Cato is 2.02 times more volatile than Designer Brands. It trades about -0.07 of its potential returns per unit of risk. Designer Brands is currently generating about -0.32 per unit of risk. If you would invest 554.00 in Cato Corporation on August 23, 2024 and sell it today you would lose (58.00) from holding Cato Corporation or give up 10.47% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Cato Corp. vs. Designer Brands
Performance |
| Timeline |
| Cato |
| Designer Brands |
Cato and Designer Brands Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cato and Designer Brands
The main advantage of trading using opposite Cato and Designer Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cato position performs unexpectedly, Designer Brands 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 Designer Brands will offset losses from the drop in Designer Brands' long position.The idea behind Cato Corporation and Designer Brands 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.| Designer Brands vs. Wolverine World Wide | Designer Brands vs. Weyco Group | Designer Brands vs. Steven Madden | Designer Brands vs. Rocky Brands |
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 Transaction History module to view history of all your transactions and understand their impact on performance.
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