Correlation Between Encore Capital and Zhong Yang

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

Diversification Opportunities for Encore Capital and Zhong Yang

-0.28

Correlation Coefficient

Encore Capital  Zhong Yang

Very good diversification

The 3 months correlation between Encore and Zhong is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Encore Capital Group and Zhong Yang Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zhong Yang 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 Zhong Yang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zhong Yang Financial has no effect on the direction of Encore Capital i.e., Encore Capital and Zhong Yang go up and down completely randomly.

Pair Corralation between Encore Capital and Zhong Yang

Given the investment horizon of 90 days Encore Capital is expected to generate 2.99 times less return on investment than Zhong Yang. But when comparing it to its historical volatility, Encore Capital Group is 2.72 times less risky than Zhong Yang. It trades about 0.17 of its potential returns per unit of risk. Zhong Yang Financial is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  130.00  in Zhong Yang Financial on October 22, 2024 and sell it today you would earn a total of  17.00  from holding Zhong Yang Financial or generate 13.08% return on investment over 90 days.

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

Encore Capital Group  vs.  Zhong Yang Financial

Encore Capital Group

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Encore Capital Group are ranked lower than 5 (%) 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.

Zhong Yang Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Zhong Yang Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Even with conflicting performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in February 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Encore Capital and Zhong Yang

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

The idea behind Encore Capital Group and Zhong Yang Financial 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.