Correlation Between Alibaba Group and Ecopetrol

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

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

Diversification Opportunities for Alibaba Group and Ecopetrol

0.64

Correlation Coefficient

Alibaba Group  Ecopetrol

Poor diversification

The 3 months correlation between Alibaba and Ecopetrol is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Alibaba Group Holding and Ecopetrol SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ecopetrol SA ADR and Alibaba Group 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 Alibaba Group Holding 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 ADR has no effect on the direction of Alibaba Group i.e., Alibaba Group and Ecopetrol go up and down completely randomly.

Pair Corralation between Alibaba Group and Ecopetrol

Given the investment horizon of 90 days Alibaba Group Holding is expected to under-perform the Ecopetrol. But the stock apears to be less risky and, when comparing its historical volatility, Alibaba Group Holding is 1.14 times less risky than Ecopetrol. The stock trades about -0.25 of its potential returns per unit of risk. The Ecopetrol SA ADR is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  821.00  in Ecopetrol SA ADR on October 9, 2024 and sell it today you would earn a total of  9.00  from holding Ecopetrol SA ADR or generate 1.1% return on investment over 90 days.

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

Alibaba Group Holding  vs.  Ecopetrol SA ADR

Alibaba Group Holding

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Alibaba Group Holding has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's fundamental drivers remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Ecopetrol SA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ecopetrol SA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Ecopetrol is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Alibaba Group and Ecopetrol

The main advantage of trading using opposite Alibaba Group and Ecopetrol positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alibaba Group 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 Alibaba Group Holding and Ecopetrol SA ADR 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.