Correlation Between Encore Capital and Futu Holdings

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

Diversification Opportunities for Encore Capital and Futu Holdings

-0.37

Correlation Coefficient

Encore Capital  Futu Holdings

Very good diversification

The 3 months correlation between Encore and Futu is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Encore Capital Group and Futu Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Futu Holdings 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 Futu Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Futu Holdings has no effect on the direction of Encore Capital i.e., Encore Capital and Futu Holdings go up and down completely randomly.

Pair Corralation between Encore Capital and Futu Holdings

Given the investment horizon of 90 days Encore Capital Group is expected to under-perform the Futu Holdings. But the stock apears to be less risky and, when comparing its historical volatility, Encore Capital Group is 1.24 times less risky than Futu Holdings. The stock trades about -0.13 of its potential returns per unit of risk. The Futu Holdings is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  8,052  in Futu Holdings on December 28, 2024 and sell it today you would earn a total of  2,916  from holding Futu Holdings or generate 36.21% return on investment over 90 days.

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

Encore Capital Group  vs.  Futu Holdings

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.

Futu Holdings

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Futu Holdings are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Futu Holdings unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Encore Capital and Futu Holdings

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

The idea behind Encore Capital Group and Futu Holdings 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.