Correlation Between Ecopetrol and PT Bank

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

Diversification Opportunities for Ecopetrol and PT Bank

-0.08

Correlation Coefficient

Ecopetrol  PT Bank

Good diversification

The 3 months correlation between Ecopetrol and BKRKF is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Ecopetrol SA ADR and PT Bank Rakyat in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PT Bank Rakyat 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 PT Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PT Bank Rakyat has no effect on the direction of Ecopetrol i.e., Ecopetrol and PT Bank go up and down completely randomly.

Pair Corralation between Ecopetrol and PT Bank

Allowing for the 90-day total investment horizon Ecopetrol SA ADR is expected to generate 0.26 times more return on investment than PT Bank. However, Ecopetrol SA ADR is 3.9 times less risky than PT Bank. It trades about 0.22 of its potential returns per unit of risk. PT Bank Rakyat is currently generating about 0.05 per unit of risk. If you would invest  768.00  in Ecopetrol SA ADR on December 29, 2024 and sell it today you would earn a total of  271.00  from holding Ecopetrol SA ADR or generate 35.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.08%
Values	Daily Returns

Ecopetrol SA ADR  vs.  PT Bank Rakyat

Ecopetrol SA ADR

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ecopetrol SA ADR are ranked lower than 17 (%) 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.

PT Bank Rakyat

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in PT Bank Rakyat are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile forward-looking signals, PT Bank reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ecopetrol and PT Bank

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

The idea behind Ecopetrol SA ADR and PT Bank Rakyat 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.