Correlation Between Encore Capital and Timbercreek Financial

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

Diversification Opportunities for Encore Capital and Timbercreek Financial

-0.22

Correlation Coefficient

Encore Capital  Timbercreek Financial

Very good diversification

The 3 months correlation between Encore and Timbercreek is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Encore Capital Group and Timbercreek Financial Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Timbercreek Financial 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 Timbercreek Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Timbercreek Financial has no effect on the direction of Encore Capital i.e., Encore Capital and Timbercreek Financial go up and down completely randomly.

Pair Corralation between Encore Capital and Timbercreek Financial

Given the investment horizon of 90 days Encore Capital Group is expected to under-perform the Timbercreek Financial. But the stock apears to be less risky and, when comparing its historical volatility, Encore Capital Group is 1.01 times less risky than Timbercreek Financial. The stock trades about 0.0 of its potential returns per unit of risk. The Timbercreek Financial Corp is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  451.00  in Timbercreek Financial Corp on October 23, 2024 and sell it today you would earn a total of  18.00  from holding Timbercreek Financial Corp or generate 3.99% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

Encore Capital Group  vs.  Timbercreek Financial Corp

Encore Capital Group

Risk-Adjusted Performance

6 of 100

Modest

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

Timbercreek Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Timbercreek Financial Corp 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 nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Encore Capital and Timbercreek Financial

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

The idea behind Encore Capital Group and Timbercreek Financial Corp 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 Commodity Directory module to find actively traded commodities issued by global exchanges.