Correlation Between Encore Capital and Futu Holdings

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

Diversification Opportunities for Encore Capital and Futu Holdings

-0.38

Correlation Coefficient

Encore Capital  Futu Holdings

Very good diversification

The 3 months correlation between Encore and Futu is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Encore Capital Group and Futu Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Futu Holdings 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 Futu Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Futu Holdings has no effect on the direction of Encore Capital i.e., Encore Capital and Futu Holdings go up and down completely randomly.

Pair Corralation between Encore Capital and Futu Holdings

Given the investment horizon of 90 days Encore Capital is expected to generate 18.49 times less return on investment than Futu Holdings. But when comparing it to its historical volatility, Encore Capital Group is 3.69 times less risky than Futu Holdings. It trades about 0.03 of its potential returns per unit of risk. Futu Holdings is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  5,758  in Futu Holdings on September 13, 2024 and sell it today you would earn a total of  2,766  from holding Futu Holdings or generate 48.04% return on investment over 90 days.

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

Encore Capital Group  vs.  Futu Holdings

Encore Capital Group

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Encore Capital Group are ranked lower than 2 (%) 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 latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Futu Holdings

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Futu Holdings are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Futu Holdings unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Encore Capital and Futu Holdings

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

The idea behind Encore Capital Group and Futu Holdings 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.