Correlation Between Encore Capital and Redwood Trust
Can any of the company-specific risk be diversified away by investing in both Encore Capital and Redwood Trust 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 Redwood Trust 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 Redwood Trust, you can compare the effects of market volatilities on Encore Capital and Redwood Trust 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 Redwood Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Encore Capital and Redwood Trust.
Diversification Opportunities for Encore Capital and Redwood Trust
0.21 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Encore and Redwood is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Encore Capital Group and Redwood Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Redwood Trust 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 Redwood Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Redwood Trust has no effect on the direction of Encore Capital i.e., Encore Capital and Redwood Trust go up and down completely randomly.
Pair Corralation between Encore Capital and Redwood Trust
Given the investment horizon of 90 days Encore Capital Group is expected to generate 1.16 times more return on investment than Redwood Trust. However, Encore Capital is 1.16 times more volatile than Redwood Trust. It trades about 0.03 of its potential returns per unit of risk. Redwood Trust is currently generating about 0.03 per unit of risk. If you would invest 4,404 in Encore Capital Group on November 28, 2024 and sell it today you would earn a total of 609.00 from holding Encore Capital Group or generate 13.83% 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. Redwood Trust
Performance |
| Timeline |
| Encore Capital Group |
| Redwood Trust |
Encore Capital and Redwood Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Encore Capital and Redwood Trust
The main advantage of trading using opposite Encore Capital and Redwood Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Encore Capital position performs unexpectedly, Redwood Trust 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 Redwood Trust will offset losses from the drop in Redwood Trust's long position.| Encore Capital vs. Guild Holdings Co | Encore Capital vs. Mr Cooper Group | Encore Capital vs. CNFinance Holdings | Encore Capital vs. Security National Financial |
| Redwood Trust vs. Two Harbors Investments | Redwood Trust vs. AG Mortgage Investment | Redwood Trust vs. Invesco Mortgage Capital | Redwood Trust vs. MFA Financial |
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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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