Correlation Between Encore Capital and Lavoro Limited

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

Diversification Opportunities for Encore Capital and Lavoro Limited

0.7

Correlation Coefficient

Encore Capital  Lavoro Limited

Poor diversification

The 3 months correlation between Encore and Lavoro is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Encore Capital Group and Lavoro Limited Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lavoro Limited Class 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 Lavoro Limited. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lavoro Limited Class has no effect on the direction of Encore Capital i.e., Encore Capital and Lavoro Limited go up and down completely randomly.

Pair Corralation between Encore Capital and Lavoro Limited

Given the investment horizon of 90 days Encore Capital is expected to generate 3.42 times less return on investment than Lavoro Limited. But when comparing it to its historical volatility, Encore Capital Group is 2.94 times less risky than Lavoro Limited. It trades about 0.2 of its potential returns per unit of risk. Lavoro Limited Class is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  400.00  in Lavoro Limited Class on September 1, 2024 and sell it today you would earn a total of  106.00  from holding Lavoro Limited Class or generate 26.5% return on investment over 90 days.

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

Encore Capital Group  vs.  Lavoro Limited Class

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 recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Lavoro Limited Class

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Lavoro Limited Class are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Lavoro Limited may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Encore Capital and Lavoro Limited

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

The idea behind Encore Capital Group and Lavoro Limited Class 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.