Correlation Between Encore Capital and GMS

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

Diversification Opportunities for Encore Capital and GMS

0.51

Correlation Coefficient

Encore Capital  GMS

Very weak diversification

The 3 months correlation between Encore and GMS is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Encore Capital Group and GMS Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GMS Inc 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 GMS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GMS Inc has no effect on the direction of Encore Capital i.e., Encore Capital and GMS go up and down completely randomly.

Pair Corralation between Encore Capital and GMS

Given the investment horizon of 90 days Encore Capital Group is expected to generate 1.14 times more return on investment than GMS. However, Encore Capital is 1.14 times more volatile than GMS Inc. It trades about 0.18 of its potential returns per unit of risk. GMS Inc is currently generating about -0.08 per unit of risk. If you would invest  4,676  in Encore Capital Group on October 22, 2024 and sell it today you would earn a total of  209.00  from holding Encore Capital Group or generate 4.47% 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.  GMS Inc

Encore Capital Group

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Encore Capital Group are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Encore Capital may actually be approaching a critical reversion point that can send shares even higher in February 2025.

GMS Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GMS Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable primary indicators, GMS is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Encore Capital and GMS

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

The idea behind Encore Capital Group and GMS Inc 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.