Correlation Between Encore Capital and FormFactor

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

Diversification Opportunities for Encore Capital and FormFactor

-0.5

Correlation Coefficient

Encore Capital  FormFactor

Very good diversification

The 3 months correlation between Encore and FormFactor is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Encore Capital Group and FormFactor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FormFactor 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 FormFactor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FormFactor has no effect on the direction of Encore Capital i.e., Encore Capital and FormFactor go up and down completely randomly.

Pair Corralation between Encore Capital and FormFactor

Given the investment horizon of 90 days Encore Capital Group is expected to under-perform the FormFactor. But the stock apears to be less risky and, when comparing its historical volatility, Encore Capital Group is 1.4 times less risky than FormFactor. The stock trades about 0.0 of its potential returns per unit of risk. The FormFactor is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  2,491  in FormFactor on October 10, 2024 and sell it today you would earn a total of  2,233  from holding FormFactor or generate 89.64% 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.  FormFactor

Encore Capital Group

Risk-Adjusted Performance

4 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Encore Capital Group are ranked lower than 4 (%) 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.

FormFactor

Risk-Adjusted Performance

2 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in FormFactor are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, FormFactor is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Encore Capital and FormFactor

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

The idea behind Encore Capital Group and FormFactor 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.