Correlation Between Encore Capital and Guild Holdings

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

Diversification Opportunities for Encore Capital and Guild Holdings

-0.04

Correlation Coefficient

Encore Capital  Guild Holdings

Good diversification

The 3 months correlation between Encore and Guild is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Encore Capital Group and Guild Holdings Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guild 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 Guild Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guild Holdings has no effect on the direction of Encore Capital i.e., Encore Capital and Guild Holdings go up and down completely randomly.

Pair Corralation between Encore Capital and Guild Holdings

Given the investment horizon of 90 days Encore Capital is expected to generate 5.08 times less return on investment than Guild Holdings. But when comparing it to its historical volatility, Encore Capital Group is 1.34 times less risky than Guild Holdings. It trades about 0.01 of its potential returns per unit of risk. Guild Holdings Co is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,059  in Guild Holdings Co on August 27, 2024 and sell it today you would earn a total of  306.00  from holding Guild Holdings Co or generate 28.9% 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.  Guild Holdings Co

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.

Guild Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Guild Holdings Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's essential indicators remain rather sound which may send shares a bit higher in December 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Encore Capital and Guild Holdings

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

The idea behind Encore Capital Group and Guild Holdings Co 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.