Correlation Between Timbercreek Financial and Encore Capital

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

Diversification Opportunities for Timbercreek Financial and Encore Capital

-0.42

Correlation Coefficient

Timbercreek Financial  Encore Capital

Very good diversification

The 3 months correlation between Timbercreek and Encore is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Timbercreek Financial Corp 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 Timbercreek 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 Timbercreek Financial Corp 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 Timbercreek Financial i.e., Timbercreek Financial and Encore Capital go up and down completely randomly.

Pair Corralation between Timbercreek Financial and Encore Capital

Assuming the 90 days horizon Timbercreek Financial is expected to generate 5.92 times less return on investment than Encore Capital. In addition to that, Timbercreek Financial is 1.51 times more volatile than Encore Capital Group. It trades about 0.0 of its total potential returns per unit of risk. Encore Capital Group is currently generating about 0.02 per unit of volatility. If you would invest  4,845  in Encore Capital Group on September 2, 2024 and sell it today you would earn a total of  74.00  from holding Encore Capital Group or generate 1.53% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.46%
Values	Daily Returns

Timbercreek Financial Corp  vs.  Encore Capital Group

Timbercreek Financial

Risk-Adjusted Performance

0 of 100

Very Weak

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

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.

Pair Trading with Timbercreek Financial and Encore Capital

The main advantage of trading using opposite Timbercreek Financial and Encore Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Timbercreek 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 Timbercreek Financial Corp 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.