Correlation Between Capital One and Encore Capital

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

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

Diversification Opportunities for Capital One and Encore Capital

-0.45

Correlation Coefficient

Capital One  Encore Capital

Very good diversification

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

Pair Corralation between Capital One and Encore Capital

Considering the 90-day investment horizon Capital One Financial is expected to under-perform the Encore Capital. But the stock apears to be less risky and, when comparing its historical volatility, Capital One Financial is 3.59 times less risky than Encore Capital. The stock trades about -0.29 of its potential returns per unit of risk. The Encore Capital Group is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  4,206  in Encore Capital Group on February 27, 2024 and sell it today you would earn a total of  168.00  from holding Encore Capital Group or generate 3.99% return on investment over 90 days.

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

Capital One Financial  vs.  Encore Capital Group

Capital One Financial

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Capital One Financial are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Capital One is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Encore Capital Group

Risk-Adjusted Performance

0 of 100

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 latest unsteady performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Capital One and Encore Capital

The main advantage of trading using opposite Capital One and Encore Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Capital One 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 Capital One Financial 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 Stocks Directory module to find actively traded stocks across global markets.