Correlation Between Encore Capital and Visa

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

Diversification Opportunities for Encore Capital and Visa

0.82

Correlation Coefficient

Encore Capital  Visa

Very poor diversification

The 3 months correlation between Encore and Visa is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Encore Capital Group and Visa Class A in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Visa Class A 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 Visa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Visa Class A has no effect on the direction of Encore Capital i.e., Encore Capital and Visa go up and down completely randomly.

Pair Corralation between Encore Capital and Visa

Given the investment horizon of 90 days Encore Capital Group is expected to generate 1.71 times more return on investment than Visa. However, Encore Capital is 1.71 times more volatile than Visa Class A. It trades about 0.06 of its potential returns per unit of risk. Visa Class A is currently generating about 0.11 per unit of risk. If you would invest  4,250  in Encore Capital Group on September 19, 2024 and sell it today you would earn a total of  654.00  from holding Encore Capital Group or generate 15.39% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.21%
Values	Daily Returns

Encore Capital Group  vs.  Visa Class A

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.

Visa Class A

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent basic indicators, Visa may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Encore Capital and Visa

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

The idea behind Encore Capital Group and Visa Class A 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.