Correlation Between UNITEDHEALTH and Encore Capital

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

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

Diversification Opportunities for UNITEDHEALTH and Encore Capital

0.38

Correlation Coefficient

UNITEDHEALTH  Encore Capital

Weak diversification

The 3 months correlation between UNITEDHEALTH and Encore is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding UNITEDHEALTH GROUP INC 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 UNITEDHEALTH 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 UNITEDHEALTH GROUP INC 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 UNITEDHEALTH i.e., UNITEDHEALTH and Encore Capital go up and down completely randomly.

Pair Corralation between UNITEDHEALTH and Encore Capital

Assuming the 90 days trading horizon UNITEDHEALTH is expected to generate 18.51 times less return on investment than Encore Capital. But when comparing it to its historical volatility, UNITEDHEALTH GROUP INC is 2.37 times less risky than Encore Capital. It trades about 0.02 of its potential returns per unit of risk. Encore Capital Group is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  4,676  in Encore Capital Group on October 24, 2024 and sell it today you would earn a total of  182.00  from holding Encore Capital Group or generate 3.89% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.0%
Values	Daily Returns

UNITEDHEALTH GROUP INC  vs.  Encore Capital Group

UNITEDHEALTH GROUP INC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days UNITEDHEALTH GROUP INC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, UNITEDHEALTH is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Encore Capital Group

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Encore Capital Group are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent basic indicators, Encore Capital may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with UNITEDHEALTH and Encore Capital

The main advantage of trading using opposite UNITEDHEALTH and Encore Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if UNITEDHEALTH 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 UNITEDHEALTH GROUP INC 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.