Correlation Between Goldman Sachs and Encore Capital

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

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

Diversification Opportunities for Goldman Sachs and Encore Capital

-0.78

Correlation Coefficient

Goldman Sachs  Encore Capital

Pay attention - limited upside

The 3 months correlation between Goldman and Encore is -0.78. Overlapping area represents the amount of risk that can be diversified away by holding Goldman Sachs Group 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 Goldman Sachs 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 Goldman Sachs Group 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 Goldman Sachs i.e., Goldman Sachs and Encore Capital go up and down completely randomly.

Pair Corralation between Goldman Sachs and Encore Capital

Allowing for the 90-day total investment horizon Goldman Sachs Group is expected to generate 0.85 times more return on investment than Encore Capital. However, Goldman Sachs Group is 1.18 times less risky than Encore Capital. It trades about 0.11 of its potential returns per unit of risk. Encore Capital Group is currently generating about -0.11 per unit of risk. If you would invest  41,351  in Goldman Sachs Group on January 30, 2024 and sell it today you would earn a total of  1,406  from holding Goldman Sachs Group or generate 3.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Goldman Sachs Group  vs.  Encore Capital Group

Goldman Sachs Group

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Goldman Sachs Group are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Goldman Sachs may actually be approaching a critical reversion point that can send shares even higher in May 2024.

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 weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in May 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Goldman Sachs and Encore Capital

The main advantage of trading using opposite Goldman Sachs and Encore Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Goldman Sachs 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 Goldman Sachs Group 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.