Correlation Between Encore Capital and Mesa Air

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

Diversification Opportunities for Encore Capital and Mesa Air

0.82

Correlation Coefficient

Encore Capital  Mesa Air

Very poor diversification

The 3 months correlation between Encore and Mesa is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Encore Capital Group and Mesa Air Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mesa Air Group 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 Mesa Air. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mesa Air Group has no effect on the direction of Encore Capital i.e., Encore Capital and Mesa Air go up and down completely randomly.

Pair Corralation between Encore Capital and Mesa Air

Given the investment horizon of 90 days Encore Capital Group is expected to generate 0.93 times more return on investment than Mesa Air. However, Encore Capital Group is 1.07 times less risky than Mesa Air. It trades about -0.11 of its potential returns per unit of risk. Mesa Air Group is currently generating about -0.17 per unit of risk. If you would invest  4,752  in Encore Capital Group on December 27, 2024 and sell it today you would lose (1,177) from holding Encore Capital Group or give up 24.77% of portfolio value over 90 days.

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

Encore Capital Group  vs.  Mesa Air Group

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.

Mesa Air Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days Mesa Air Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Encore Capital and Mesa Air

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

The idea behind Encore Capital Group and Mesa Air Group 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.