Correlation Between Encore Capital and WPP PLC

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

Diversification Opportunities for Encore Capital and WPP PLC

0.7

Correlation Coefficient

Encore Capital  WPP PLC

Poor diversification

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

Pair Corralation between Encore Capital and WPP PLC

Given the investment horizon of 90 days Encore Capital Group is expected to under-perform the WPP PLC. In addition to that, Encore Capital is 1.1 times more volatile than WPP PLC ADR. It trades about -0.1 of its total potential returns per unit of risk. WPP PLC ADR is currently generating about -0.08 per unit of volatility. If you would invest  5,320  in WPP PLC ADR on September 26, 2024 and sell it today you would lose (113.00) from holding WPP PLC ADR or give up 2.12% of portfolio value over 90 days.

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

Encore Capital Group  vs.  WPP PLC ADR

Encore Capital Group

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Encore Capital Group are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

WPP PLC ADR

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in WPP PLC ADR are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, WPP PLC is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Encore Capital and WPP PLC

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

The idea behind Encore Capital Group and WPP PLC ADR 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.