Correlation Between Ecopetrol and Cult Food

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

Diversification Opportunities for Ecopetrol and Cult Food

-0.36

Correlation Coefficient

Ecopetrol  Cult Food

Very good diversification

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

Pair Corralation between Ecopetrol and Cult Food

Allowing for the 90-day total investment horizon Ecopetrol SA ADR is expected to generate 0.37 times more return on investment than Cult Food. However, Ecopetrol SA ADR is 2.69 times less risky than Cult Food. It trades about 0.21 of its potential returns per unit of risk. Cult Food Science is currently generating about -0.05 per unit of risk. If you would invest  764.00  in Ecopetrol SA ADR on December 20, 2024 and sell it today you would earn a total of  257.00  from holding Ecopetrol SA ADR or generate 33.64% 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.  Cult Food Science

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 16 (%) 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.

Cult Food Science

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cult Food Science has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Ecopetrol and Cult Food

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

The idea behind Ecopetrol SA ADR and Cult Food Science 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.