Correlation Between Commonwealth Bank and Encore Capital

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

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

Diversification Opportunities for Commonwealth Bank and Encore Capital

-0.12

Correlation Coefficient

Commonwealth Bank  Encore Capital

Good diversification

The 3 months correlation between Commonwealth and Encore is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Commonwealth Bank of 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 Commonwealth Bank 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 Commonwealth Bank of 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 Commonwealth Bank i.e., Commonwealth Bank and Encore Capital go up and down completely randomly.

Pair Corralation between Commonwealth Bank and Encore Capital

Assuming the 90 days horizon Commonwealth Bank of is expected to generate 0.68 times more return on investment than Encore Capital. However, Commonwealth Bank of is 1.48 times less risky than Encore Capital. It trades about 0.07 of its potential returns per unit of risk. Encore Capital Group is currently generating about -0.04 per unit of risk. If you would invest  8,647  in Commonwealth Bank of on July 18, 2024 and sell it today you would earn a total of  567.00  from holding Commonwealth Bank of or generate 6.56% return on investment over 90 days.

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

Commonwealth Bank of  vs.  Encore Capital Group

Commonwealth Bank

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Commonwealth Bank of are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Commonwealth Bank may actually be approaching a critical reversion point that can send shares even higher in November 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 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 Commonwealth Bank and Encore Capital

The main advantage of trading using opposite Commonwealth Bank and Encore Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Commonwealth Bank 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 Commonwealth Bank of 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.