Correlation Between SYSTEMAIR and Ecopetrol

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

By analyzing existing cross correlation between SYSTEMAIR AB and Ecopetrol SA, you can compare the effects of market volatilities on SYSTEMAIR and Ecopetrol 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 SYSTEMAIR with a short position of Ecopetrol. Check out your portfolio center. Please also check ongoing floating volatility patterns of SYSTEMAIR and Ecopetrol.

Diversification Opportunities for SYSTEMAIR and Ecopetrol

0.39

Correlation Coefficient

SYSTEMAIR  Ecopetrol

Weak diversification

The 3 months correlation between SYSTEMAIR and Ecopetrol is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding SYSTEMAIR AB and Ecopetrol SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ecopetrol SA and SYSTEMAIR 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 SYSTEMAIR AB are associated (or correlated) with Ecopetrol. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ecopetrol SA has no effect on the direction of SYSTEMAIR i.e., SYSTEMAIR and Ecopetrol go up and down completely randomly.

Pair Corralation between SYSTEMAIR and Ecopetrol

Assuming the 90 days trading horizon SYSTEMAIR AB is expected to generate 1.6 times more return on investment than Ecopetrol. However, SYSTEMAIR is 1.6 times more volatile than Ecopetrol SA. It trades about 0.1 of its potential returns per unit of risk. Ecopetrol SA is currently generating about -0.09 per unit of risk. If you would invest  569.00  in SYSTEMAIR AB on September 15, 2024 and sell it today you would earn a total of  257.00  from holding SYSTEMAIR AB or generate 45.17% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

SYSTEMAIR AB  vs.  Ecopetrol SA

SYSTEMAIR AB

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in SYSTEMAIR AB are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, SYSTEMAIR may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Ecopetrol SA

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with SYSTEMAIR and Ecopetrol

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

The idea behind SYSTEMAIR AB and Ecopetrol SA 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.