Correlation Between Encore Capital and ECN Capital
Can any of the company-specific risk be diversified away by investing in both Encore Capital and ECN Capital 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 Encore Capital and ECN Capital into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Encore Capital Group and ECN Capital Corp, you can compare the effects of market volatilities on Encore Capital and ECN Capital 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 Encore Capital with a short position of ECN Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of Encore Capital and ECN Capital.
Diversification Opportunities for Encore Capital and ECN Capital
0.22 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Encore and ECN is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Encore Capital Group and ECN Capital Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ECN Capital Corp and Encore Capital 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 Encore Capital Group are associated (or correlated) with ECN Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ECN Capital Corp has no effect on the direction of Encore Capital i.e., Encore Capital and ECN Capital go up and down completely randomly.
Pair Corralation between Encore Capital and ECN Capital
Given the investment horizon of 90 days Encore Capital is expected to generate 10.4 times less return on investment than ECN Capital. But when comparing it to its historical volatility, Encore Capital Group is 2.03 times less risky than ECN Capital. It trades about 0.02 of its potential returns per unit of risk. ECN Capital Corp is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 157.00 in ECN Capital Corp on November 2, 2024 and sell it today you would earn a total of 67.00 from holding ECN Capital Corp or generate 42.68% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Encore Capital Group vs. ECN Capital Corp
Performance |
| Timeline |
| Encore Capital Group |
| ECN Capital Corp |
Encore Capital and ECN Capital Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Encore Capital and ECN Capital
The main advantage of trading using opposite Encore Capital and ECN Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Encore Capital position performs unexpectedly, ECN Capital 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 ECN Capital will offset losses from the drop in ECN Capital's long position.The idea behind Encore Capital Group and ECN Capital Corp 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.| ECN Capital vs. PennyMac Finl Svcs | ECN Capital vs. Velocity Financial Llc | ECN Capital vs. Encore Capital Group | ECN Capital vs. Greystone Housing Impact |
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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.
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