Correlation Between Ecopetrol and XTRA Bitcoin

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

Diversification Opportunities for Ecopetrol and XTRA Bitcoin

-0.36

Correlation Coefficient

Ecopetrol  XTRA Bitcoin

Very good diversification

The 3 months correlation between Ecopetrol and XTRA is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Ecopetrol SA ADR and XTRA Bitcoin in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on XTRA Bitcoin 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 XTRA Bitcoin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of XTRA Bitcoin has no effect on the direction of Ecopetrol i.e., Ecopetrol and XTRA Bitcoin go up and down completely randomly.

Pair Corralation between Ecopetrol and XTRA Bitcoin

Allowing for the 90-day total investment horizon Ecopetrol is expected to generate 1.71 times less return on investment than XTRA Bitcoin. But when comparing it to its historical volatility, Ecopetrol SA ADR is 5.16 times less risky than XTRA Bitcoin. It trades about 0.22 of its potential returns per unit of risk. XTRA Bitcoin is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  0.09  in XTRA Bitcoin on December 28, 2024 and sell it today you would earn a total of  0.01  from holding XTRA Bitcoin or generate 11.11% 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.  XTRA Bitcoin

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.

XTRA Bitcoin

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in XTRA Bitcoin are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting basic indicators, XTRA Bitcoin exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ecopetrol and XTRA Bitcoin

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

The idea behind Ecopetrol SA ADR and XTRA Bitcoin 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.