Correlation Between Encore Capital and Enova International

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

Diversification Opportunities for Encore Capital and Enova International

0.55

Correlation Coefficient

Encore Capital  Enova International

Very weak diversification

The 3 months correlation between Encore and Enova is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Encore Capital Group and Enova International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Enova International 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 Enova International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Enova International has no effect on the direction of Encore Capital i.e., Encore Capital and Enova International go up and down completely randomly.

Pair Corralation between Encore Capital and Enova International

Given the investment horizon of 90 days Encore Capital is expected to generate 10.68 times less return on investment than Enova International. But when comparing it to its historical volatility, Encore Capital Group is 1.28 times less risky than Enova International. It trades about 0.02 of its potential returns per unit of risk. Enova International is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  8,239  in Enova International on September 2, 2024 and sell it today you would earn a total of  2,312  from holding Enova International or generate 28.06% return on investment over 90 days.

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

Encore Capital Group  vs.  Enova International

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.

Enova International

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Enova International are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, Enova International sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Encore Capital and Enova International

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

The idea behind Encore Capital Group and Enova International 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.

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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.