Correlation Between Encore Capital and Cool

Can any of the company-specific risk be diversified away by investing in both Encore Capital and Cool 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 Cool 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 Cool Company, you can compare the effects of market volatilities on Encore Capital and Cool 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 Cool. Check out your portfolio center. Please also check ongoing floating volatility patterns of Encore Capital and Cool.

Diversification Opportunities for Encore Capital and Cool

-0.59

Correlation Coefficient

Encore Capital  Cool

Excellent diversification

The 3 months correlation between Encore and Cool is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Encore Capital Group and Cool Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cool Company 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 Cool. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cool Company has no effect on the direction of Encore Capital i.e., Encore Capital and Cool go up and down completely randomly.

Pair Corralation between Encore Capital and Cool

Given the investment horizon of 90 days Encore Capital Group is expected to generate 0.78 times more return on investment than Cool. However, Encore Capital Group is 1.28 times less risky than Cool. It trades about 0.06 of its potential returns per unit of risk. Cool Company is currently generating about -0.09 per unit of risk. If you would invest  4,191  in Encore Capital Group on September 30, 2024 and sell it today you would earn a total of  561.00  from holding Encore Capital Group or generate 13.39% return on investment over 90 days.

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

Encore Capital Group  vs.  Cool Company

Encore Capital Group

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Encore Capital Group are ranked lower than 1 (%) 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.

Cool Company

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cool Company has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's fundamental 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 Encore Capital and Cool

The main advantage of trading using opposite Encore Capital and Cool positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Encore Capital position performs unexpectedly, Cool 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 Cool will offset losses from the drop in Cool's long position.

The idea behind Encore Capital Group and Cool Company 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..