Correlation Between Tillys and Cato
Can any of the company-specific risk be diversified away by investing in both Tillys 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 Tillys and Cato into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Tillys Inc and Cato Corporation, you can compare the effects of market volatilities on Tillys 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 Tillys with a short position of Cato. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tillys and Cato.
Diversification Opportunities for Tillys and Cato
Excellent diversification
The 3 months correlation between Tillys and Cato is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Tillys Inc and Cato Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cato and Tillys 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 Tillys 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 Tillys i.e., Tillys and Cato go up and down completely randomly.
Pair Corralation between Tillys and Cato
Given the investment horizon of 90 days Tillys Inc is expected to under-perform the Cato. In addition to that, Tillys is 1.0 times more volatile than Cato Corporation. It trades about -0.07 of its total potential returns per unit of risk. Cato Corporation is currently generating about -0.05 per unit of volatility. If you would invest 632.00 in Cato Corporation on August 27, 2024 and sell it today you would lose (269.00) from holding Cato Corporation or give up 42.56% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Tillys Inc vs. Cato Corp.
Performance |
| Timeline |
| Tillys Inc |
| Cato |
Tillys and Cato Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Tillys and Cato
The main advantage of trading using opposite Tillys and Cato positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tillys 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 Tillys 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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