Correlation Between Encore Capital and Waterstone Financial

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

Diversification Opportunities for Encore Capital and Waterstone Financial

0.75

Correlation Coefficient

Encore Capital  Waterstone Financial

Poor diversification

The 3 months correlation between Encore and Waterstone is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Encore Capital Group and Waterstone Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Waterstone Financial 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 Waterstone Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Waterstone Financial has no effect on the direction of Encore Capital i.e., Encore Capital and Waterstone Financial go up and down completely randomly.

Pair Corralation between Encore Capital and Waterstone Financial

Given the investment horizon of 90 days Encore Capital Group is expected to generate 0.81 times more return on investment than Waterstone Financial. However, Encore Capital Group is 1.24 times less risky than Waterstone Financial. It trades about 0.02 of its potential returns per unit of risk. Waterstone Financial is currently generating about -0.04 per unit of risk. If you would invest  4,905  in Encore Capital Group on September 18, 2024 and sell it today you would earn a total of  83.00  from holding Encore Capital Group or generate 1.69% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Encore Capital Group  vs.  Waterstone Financial

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 latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Waterstone Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Waterstone Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental drivers, Waterstone Financial is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Encore Capital and Waterstone Financial

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

The idea behind Encore Capital Group and Waterstone Financial 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.

Check out your portfolio center.

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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.