Correlation Between Ecopetrol and Buyer Group

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

Diversification Opportunities for Ecopetrol and Buyer Group

0.63

Correlation Coefficient

Ecopetrol  Buyer Group

Poor diversification

The 3 months correlation between Ecopetrol and Buyer is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Ecopetrol SA ADR and Buyer Group International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Buyer Group International 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 Buyer Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Buyer Group International has no effect on the direction of Ecopetrol i.e., Ecopetrol and Buyer Group go up and down completely randomly.

Pair Corralation between Ecopetrol and Buyer Group

Allowing for the 90-day total investment horizon Ecopetrol SA ADR is expected to generate 0.22 times more return on investment than Buyer Group. However, Ecopetrol SA ADR is 4.54 times less risky than Buyer Group. It trades about -0.15 of its potential returns per unit of risk. Buyer Group International is currently generating about -0.08 per unit of risk. If you would invest  798.00  in Ecopetrol SA ADR on September 27, 2024 and sell it today you would lose (43.00) from holding Ecopetrol SA ADR or give up 5.39% of portfolio value over 90 days.

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

Ecopetrol SA ADR  vs.  Buyer Group International

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 conflicting 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.

Buyer Group International

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Ecopetrol and Buyer Group

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

The idea behind Ecopetrol SA ADR and Buyer Group International 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.