Correlation Between Asbury Automotive and Encore Capital

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

Diversification Opportunities for Asbury Automotive and Encore Capital

0.94
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Asbury and Encore is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Asbury Automotive Group 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 Asbury Automotive 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 Asbury Automotive Group 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 Asbury Automotive i.e., Asbury Automotive and Encore Capital go up and down completely randomly.

Pair Corralation between Asbury Automotive and Encore Capital

Considering the 90-day investment horizon Asbury Automotive Group is expected to under-perform the Encore Capital. In addition to that, Asbury Automotive is 1.12 times more volatile than Encore Capital Group. It trades about -0.14 of its total potential returns per unit of risk. Encore Capital Group is currently generating about -0.08 per unit of volatility. If you would invest  4,977  in Encore Capital Group on October 7, 2024 and sell it today you would lose (223.00) from holding Encore Capital Group or give up 4.48% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Asbury Automotive Group  vs.  Encore Capital Group

 Performance 
       Timeline  
Asbury Automotive 

Risk-Adjusted Performance

3 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Asbury Automotive Group are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable fundamental drivers, Asbury Automotive is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.
Encore Capital Group 

Risk-Adjusted Performance

5 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Encore Capital Group are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Encore Capital may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Asbury Automotive and Encore Capital Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Asbury Automotive and Encore Capital

The main advantage of trading using opposite Asbury Automotive and Encore Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Asbury Automotive 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.
The idea behind Asbury Automotive Group 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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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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.

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