Correlation Between Encore Capital and Park National

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

Diversification Opportunities for Encore Capital and Park National

0.62

Correlation Coefficient

Encore Capital  Park National

Poor diversification

The 3 months correlation between Encore and Park is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Encore Capital Group and Park National in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Park National 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 Park National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Park National has no effect on the direction of Encore Capital i.e., Encore Capital and Park National go up and down completely randomly.

Pair Corralation between Encore Capital and Park National

Given the investment horizon of 90 days Encore Capital Group is expected to under-perform the Park National. In addition to that, Encore Capital is 2.43 times more volatile than Park National. It trades about -0.14 of its total potential returns per unit of risk. Park National is currently generating about -0.11 per unit of volatility. If you would invest  17,112  in Park National on December 18, 2024 and sell it today you would lose (1,649) from holding Park National or give up 9.64% of portfolio value over 90 days.

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

Encore Capital Group  vs.  Park National

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 unsteady 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.

Park National

Risk-Adjusted Performance

Very Weak

Over the last 90 days Park National has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Encore Capital and Park National

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

The idea behind Encore Capital Group and Park National 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.