Correlation Between Floor Decor and Cato

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

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

Diversification Opportunities for Floor Decor and Cato

0.49

Correlation Coefficient

Floor Decor  Cato

Very weak diversification

The 3 months correlation between Floor and Cato is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Floor Decor Holdings and Cato Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cato and Floor Decor 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 Floor Decor Holdings 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 Floor Decor i.e., Floor Decor and Cato go up and down completely randomly.

Pair Corralation between Floor Decor and Cato

Considering the 90-day investment horizon Floor Decor Holdings is expected to generate 1.31 times more return on investment than Cato. However, Floor Decor is 1.31 times more volatile than Cato Corporation. It trades about 0.04 of its potential returns per unit of risk. Cato Corporation is currently generating about -0.04 per unit of risk. If you would invest  7,696  in Floor Decor Holdings on February 24, 2024 and sell it today you would earn a total of  3,526  from holding Floor Decor Holdings or generate 45.82% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.8%
Values	Daily Returns

Floor Decor Holdings  vs.  Cato Corp.

Floor Decor Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Floor Decor Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Floor Decor is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

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 very healthy basic indicators, Cato is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Floor Decor and Cato

The main advantage of trading using opposite Floor Decor and Cato positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Floor Decor 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 Floor Decor Holdings 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.