Correlation Between PennyMac Finl and Encore Capital

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

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

Diversification Opportunities for PennyMac Finl and Encore Capital

0.45

Correlation Coefficient

PennyMac Finl  Encore Capital

Very weak diversification

The 3 months correlation between PennyMac and Encore is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding PennyMac Finl Svcs 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 PennyMac Finl 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 PennyMac Finl Svcs 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 PennyMac Finl i.e., PennyMac Finl and Encore Capital go up and down completely randomly.

Pair Corralation between PennyMac Finl and Encore Capital

Given the investment horizon of 90 days PennyMac Finl Svcs is expected to generate 0.59 times more return on investment than Encore Capital. However, PennyMac Finl Svcs is 1.69 times less risky than Encore Capital. It trades about 0.01 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  10,108  in PennyMac Finl Svcs on December 29, 2024 and sell it today you would earn a total of  15.00  from holding PennyMac Finl Svcs or generate 0.15% return on investment over 90 days.

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

PennyMac Finl Svcs  vs.  Encore Capital Group

PennyMac Finl Svcs

Risk-Adjusted Performance

Very Weak

Over the last 90 days PennyMac Finl Svcs has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, PennyMac Finl is not utilizing all of its potentials. The newest stock price confusion, may contribute to short-horizon losses for the traders.

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 PennyMac Finl and Encore Capital

The main advantage of trading using opposite PennyMac Finl and Encore Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PennyMac Finl 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 PennyMac Finl Svcs 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.