Correlation Between Encore Capital and CorVel Corp

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

Diversification Opportunities for Encore Capital and CorVel Corp

0.61

Correlation Coefficient

Encore Capital  CorVel Corp

Poor diversification

The 3 months correlation between Encore and CorVel is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Encore Capital Group and CorVel Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CorVel 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 CorVel Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CorVel Corp has no effect on the direction of Encore Capital i.e., Encore Capital and CorVel Corp go up and down completely randomly.

Pair Corralation between Encore Capital and CorVel Corp

Given the investment horizon of 90 days Encore Capital Group is expected to under-perform the CorVel Corp. In addition to that, Encore Capital is 1.54 times more volatile than CorVel Corp. It trades about -0.13 of its total potential returns per unit of risk. CorVel Corp is currently generating about 0.01 per unit of volatility. If you would invest  11,226  in CorVel Corp on December 28, 2024 and sell it today you would lose (31.00) from holding CorVel Corp or give up 0.28% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Encore Capital Group  vs.  CorVel Corp

Encore Capital Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days Encore Capital Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite abnormal performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

CorVel Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days CorVel Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, CorVel Corp is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Encore Capital and CorVel Corp

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

The idea behind Encore Capital Group and CorVel 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.

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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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.