Correlation Between Encore Capital and RCS MediaGroup

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

Diversification Opportunities for Encore Capital and RCS MediaGroup

0.41

Correlation Coefficient

Encore Capital  RCS MediaGroup

Very weak diversification

The 3 months correlation between Encore and RCS is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Encore Capital Group and RCS MediaGroup SpA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RCS MediaGroup SpA 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 RCS MediaGroup. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RCS MediaGroup SpA has no effect on the direction of Encore Capital i.e., Encore Capital and RCS MediaGroup go up and down completely randomly.

Pair Corralation between Encore Capital and RCS MediaGroup

Given the investment horizon of 90 days Encore Capital Group is expected to under-perform the RCS MediaGroup. In addition to that, Encore Capital is 1.08 times more volatile than RCS MediaGroup SpA. It trades about 0.0 of its total potential returns per unit of risk. RCS MediaGroup SpA is currently generating about 0.06 per unit of volatility. If you would invest  73.00  in RCS MediaGroup SpA on September 24, 2024 and sell it today you would earn a total of  14.00  from holding RCS MediaGroup SpA or generate 19.18% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	70.68%
Values	Daily Returns

Encore Capital Group  vs.  RCS MediaGroup SpA

Encore Capital Group

Risk-Adjusted Performance

0 of 100

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 nearly stable basic indicators, Encore Capital is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

RCS MediaGroup SpA

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in RCS MediaGroup SpA are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile primary indicators, RCS MediaGroup may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Encore Capital and RCS MediaGroup

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

The idea behind Encore Capital Group and RCS MediaGroup SpA 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.