Correlation Between Encore Capital and World Acceptance

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

Diversification Opportunities for Encore Capital and World Acceptance

0.73

Correlation Coefficient

Encore Capital  World Acceptance

Poor diversification

The 3 months correlation between Encore and World is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Encore Capital Group and World Acceptance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on World Acceptance 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 World Acceptance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of World Acceptance has no effect on the direction of Encore Capital i.e., Encore Capital and World Acceptance go up and down completely randomly.

Pair Corralation between Encore Capital and World Acceptance

Given the investment horizon of 90 days Encore Capital is expected to generate 2.45 times less return on investment than World Acceptance. But when comparing it to its historical volatility, Encore Capital Group is 1.29 times less risky than World Acceptance. It trades about 0.02 of its potential returns per unit of risk. World Acceptance is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  11,598  in World Acceptance on September 5, 2024 and sell it today you would earn a total of  420.00  from holding World Acceptance or generate 3.62% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Encore Capital Group  vs.  World Acceptance

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 recent stock price disturbance, may contribute to mid-run losses for the stockholders.

World Acceptance

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in World Acceptance are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound essential indicators, World Acceptance is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Encore Capital and World Acceptance

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

The idea behind Encore Capital Group and World Acceptance 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.