Correlation Between Encore Capital and Income Opportunity

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

Diversification Opportunities for Encore Capital and Income Opportunity

-0.42

Correlation Coefficient

Encore Capital  Income Opportunity

Very good diversification

The 3 months correlation between Encore and Income is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Encore Capital Group and Income Opportunity Realty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Income Opportunity Realty 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 Income Opportunity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Income Opportunity Realty has no effect on the direction of Encore Capital i.e., Encore Capital and Income Opportunity go up and down completely randomly.

Pair Corralation between Encore Capital and Income Opportunity

Given the investment horizon of 90 days Encore Capital Group is expected to under-perform the Income Opportunity. But the stock apears to be less risky and, when comparing its historical volatility, Encore Capital Group is 1.13 times less risky than Income Opportunity. The stock trades about -0.06 of its potential returns per unit of risk. The Income Opportunity Realty is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  1,650  in Income Opportunity Realty on March 14, 2024 and sell it today you would lose (25.00) from holding Income Opportunity Realty or give up 1.52% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	65.08%
Values	Daily Returns

Encore Capital Group  vs.  Income Opportunity Realty

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 inconsistent 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.

Income Opportunity Realty

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Income Opportunity Realty has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Income Opportunity is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Encore Capital and Income Opportunity

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

The idea behind Encore Capital Group and Income Opportunity Realty 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..