Correlation Between FirstCash and Encore Capital

Can any of the company-specific risk be diversified away by investing in both FirstCash and Encore Capital 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 FirstCash and Encore Capital into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between FirstCash and Encore Capital Group, you can compare the effects of market volatilities on FirstCash and Encore Capital 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 FirstCash with a short position of Encore Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of FirstCash and Encore Capital.

Diversification Opportunities for FirstCash and Encore Capital

-0.4

Correlation Coefficient

FirstCash  Encore Capital

Very good diversification

The 3 months correlation between FirstCash and Encore is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding FirstCash and Encore Capital Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Encore Capital Group and FirstCash 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 FirstCash are associated (or correlated) with Encore Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Encore Capital Group has no effect on the direction of FirstCash i.e., FirstCash and Encore Capital go up and down completely randomly.

Pair Corralation between FirstCash and Encore Capital

Given the investment horizon of 90 days FirstCash is expected to generate 0.35 times more return on investment than Encore Capital. However, FirstCash is 2.86 times less risky than Encore Capital. It trades about 0.21 of its potential returns per unit of risk. Encore Capital Group is currently generating about -0.13 per unit of risk. If you would invest  10,262  in FirstCash on December 29, 2024 and sell it today you would earn a total of  1,753  from holding FirstCash or generate 17.08% return on investment over 90 days.

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

FirstCash  vs.  Encore Capital Group

FirstCash

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in FirstCash are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady technical and fundamental indicators, FirstCash unveiled solid returns over the last few months and may actually be approaching a breakup point.

Encore Capital Group

Risk-Adjusted Performance

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 abnormal performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with FirstCash and Encore Capital

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

The idea behind FirstCash and Encore Capital Group 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 Channel module to use Commodity Channel Index to analyze current equity momentum.