Correlation Between Torrid Holdings and Cato

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

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

Diversification Opportunities for Torrid Holdings and Cato

-0.34

Correlation Coefficient

Torrid Holdings  Cato

Very good diversification

The 3 months correlation between Torrid and Cato is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Torrid Holdings and Cato Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cato and Torrid Holdings 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 Torrid 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 Torrid Holdings i.e., Torrid Holdings and Cato go up and down completely randomly.

Pair Corralation between Torrid Holdings and Cato

Given the investment horizon of 90 days Torrid Holdings is expected to generate 1.06 times more return on investment than Cato. However, Torrid Holdings is 1.06 times more volatile than Cato Corporation. It trades about 0.03 of its potential returns per unit of risk. Cato Corporation is currently generating about -0.04 per unit of risk. If you would invest  401.00  in Torrid Holdings on September 13, 2024 and sell it today you would earn a total of  4.00  from holding Torrid Holdings or generate 1.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Torrid Holdings  vs.  Cato Corp.

Torrid Holdings

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Torrid Holdings are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Torrid Holdings may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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 conflicting performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Torrid Holdings and Cato

The main advantage of trading using opposite Torrid Holdings and Cato positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Torrid Holdings 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 Torrid 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.