Correlation Between PROVIDENCE and Encore Capital

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Can any of the company-specific risk be diversified away by investing in both PROVIDENCE and Encore 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 PROVIDENCE and Encore Capital into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between PROVIDENCE HEALTH SVCS and Encore Capital Group, you can compare the effects of market volatilities on PROVIDENCE and Encore 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 PROVIDENCE with a short position of Encore Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of PROVIDENCE and Encore Capital.

Diversification Opportunities for PROVIDENCE and Encore Capital

0.56
  Correlation Coefficient

Very weak diversification

The 3 months correlation between PROVIDENCE and Encore is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding PROVIDENCE HEALTH SVCS and Encore Capital Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Encore Capital Group and PROVIDENCE 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 PROVIDENCE HEALTH SVCS are associated (or correlated) with Encore Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Encore Capital Group has no effect on the direction of PROVIDENCE i.e., PROVIDENCE and Encore Capital go up and down completely randomly.

Pair Corralation between PROVIDENCE and Encore Capital

Assuming the 90 days trading horizon PROVIDENCE is expected to generate 1.8 times less return on investment than Encore Capital. But when comparing it to its historical volatility, PROVIDENCE HEALTH SVCS is 1.16 times less risky than Encore Capital. It trades about 0.01 of its potential returns per unit of risk. Encore Capital Group is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  4,558  in Encore Capital Group on August 31, 2024 and sell it today you would earn a total of  380.00  from holding Encore Capital Group or generate 8.34% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy14.21%
ValuesDaily Returns

PROVIDENCE HEALTH SVCS  vs.  Encore Capital Group

 Performance 
       Timeline  
PROVIDENCE HEALTH SVCS 

Risk-Adjusted Performance

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Strong
Very Weak
Over the last 90 days PROVIDENCE HEALTH SVCS has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Bond's basic indicators remain somewhat strong which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long term up-swing for PROVIDENCE HEALTH SVCS investors.
Encore Capital Group 

Risk-Adjusted Performance

2 of 100

 
Weak
 
Strong
Very Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Encore Capital Group are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Encore Capital is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

PROVIDENCE and Encore Capital Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with PROVIDENCE and Encore Capital

The main advantage of trading using opposite PROVIDENCE and Encore Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PROVIDENCE position performs unexpectedly, Encore 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 Encore Capital will offset losses from the drop in Encore Capital's long position.
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The idea behind PROVIDENCE HEALTH SVCS and Encore Capital Group 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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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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.

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