Correlation Between Ecopetrol and Global Acquisitions

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

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

Diversification Opportunities for Ecopetrol and Global Acquisitions

-0.14

Correlation Coefficient

Ecopetrol  Global Acquisitions

Good diversification

The 3 months correlation between Ecopetrol and Global is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Ecopetrol SA ADR and Global Acquisitions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Acquisitions and Ecopetrol 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 Ecopetrol SA ADR are associated (or correlated) with Global Acquisitions. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Acquisitions has no effect on the direction of Ecopetrol i.e., Ecopetrol and Global Acquisitions go up and down completely randomly.

Pair Corralation between Ecopetrol and Global Acquisitions

Allowing for the 90-day total investment horizon Ecopetrol is expected to generate 2.09 times less return on investment than Global Acquisitions. But when comparing it to its historical volatility, Ecopetrol SA ADR is 4.0 times less risky than Global Acquisitions. It trades about 0.13 of its potential returns per unit of risk. Global Acquisitions is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  235.00  in Global Acquisitions on December 2, 2024 and sell it today you would earn a total of  12.00  from holding Global Acquisitions or generate 5.11% return on investment over 90 days.

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

Ecopetrol SA ADR  vs.  Global Acquisitions

Ecopetrol SA ADR

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ecopetrol SA ADR are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental indicators, Ecopetrol exhibited solid returns over the last few months and may actually be approaching a breakup point.

Global Acquisitions

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Global Acquisitions are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Global Acquisitions reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ecopetrol and Global Acquisitions

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

The idea behind Ecopetrol SA ADR and Global Acquisitions 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.