Correlation Between Encore Capital and Rocket Companies

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

Diversification Opportunities for Encore Capital and Rocket Companies

-0.7

Correlation Coefficient

Encore Capital  Rocket Companies

Excellent diversification

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

Pair Corralation between Encore Capital and Rocket Companies

Given the investment horizon of 90 days Encore Capital Group is expected to under-perform the Rocket Companies. But the stock apears to be less risky and, when comparing its historical volatility, Encore Capital Group is 1.16 times less risky than Rocket Companies. The stock trades about -0.13 of its potential returns per unit of risk. The Rocket Companies is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  1,044  in Rocket Companies on December 28, 2024 and sell it today you would earn a total of  259.00  from holding Rocket Companies or generate 24.81% return on investment over 90 days.

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

Encore Capital Group  vs.  Rocket Companies

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.

Rocket Companies

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rocket Companies are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent forward-looking signals, Rocket Companies unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Encore Capital and Rocket Companies

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

The idea behind Encore Capital Group and Rocket Companies 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.