Correlation Between AmTrust Financial and Encore Capital

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

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

Diversification Opportunities for AmTrust Financial and Encore Capital

0.4

Correlation Coefficient

AmTrust Financial  Encore Capital

Very weak diversification

The 3 months correlation between AmTrust and Encore is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding AmTrust Financial Services 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 AmTrust Financial 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 AmTrust Financial Services 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 AmTrust Financial i.e., AmTrust Financial and Encore Capital go up and down completely randomly.

Pair Corralation between AmTrust Financial and Encore Capital

Assuming the 90 days horizon AmTrust Financial is expected to generate 3.99 times less return on investment than Encore Capital. But when comparing it to its historical volatility, AmTrust Financial Services is 1.14 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 0.02 of returns per unit of risk over similar time horizon. If you would invest  4,781  in Encore Capital Group on September 5, 2024 and sell it today you would earn a total of  54.00  from holding Encore Capital Group or generate 1.13% return on investment over 90 days.

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

AmTrust Financial Services  vs.  Encore Capital Group

AmTrust Financial

Risk-Adjusted Performance

0 of 100

Very Weak

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

Encore Capital Group

Risk-Adjusted Performance

1 of 100

Weak

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

Pair Trading with AmTrust Financial and Encore Capital

The main advantage of trading using opposite AmTrust Financial and Encore Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AmTrust Financial 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 AmTrust Financial Services 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..