Correlation Between Ecopetrol and AmTrust Financial

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

Diversification Opportunities for Ecopetrol and AmTrust Financial

-0.67

Correlation Coefficient

Ecopetrol  AmTrust Financial

Excellent diversification

The 3 months correlation between Ecopetrol and AmTrust is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Ecopetrol SA ADR and AmTrust Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AmTrust Financial 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 AmTrust Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AmTrust Financial has no effect on the direction of Ecopetrol i.e., Ecopetrol and AmTrust Financial go up and down completely randomly.

Pair Corralation between Ecopetrol and AmTrust Financial

Allowing for the 90-day total investment horizon Ecopetrol SA ADR is expected to under-perform the AmTrust Financial. In addition to that, Ecopetrol is 1.73 times more volatile than AmTrust Financial Services. It trades about -0.13 of its total potential returns per unit of risk. AmTrust Financial Services is currently generating about 0.14 per unit of volatility. If you would invest  1,240  in AmTrust Financial Services on September 3, 2024 and sell it today you would earn a total of  115.00  from holding AmTrust Financial Services or generate 9.27% return on investment over 90 days.

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

Ecopetrol SA ADR  vs.  AmTrust Financial Services

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 weak performance in the last few months, the Stock's fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

AmTrust Financial

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AmTrust Financial Services are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak forward indicators, AmTrust Financial may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Ecopetrol and AmTrust Financial

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

The idea behind Ecopetrol SA ADR and AmTrust Financial Services 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.

Check out your portfolio center.

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 Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.