Correlation Between Ecopetrol and FG Merger

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

Diversification Opportunities for Ecopetrol and FG Merger

-0.16

Correlation Coefficient

Ecopetrol  FG Merger

Good diversification

The 3 months correlation between Ecopetrol and FGMC is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Ecopetrol SA ADR and FG Merger II in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FG Merger II 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 FG Merger. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FG Merger II has no effect on the direction of Ecopetrol i.e., Ecopetrol and FG Merger go up and down completely randomly.

Pair Corralation between Ecopetrol and FG Merger

Allowing for the 90-day total investment horizon Ecopetrol SA ADR is expected to generate 18.7 times more return on investment than FG Merger. However, Ecopetrol is 18.7 times more volatile than FG Merger II. It trades about 0.22 of its potential returns per unit of risk. FG Merger II is currently generating about -0.15 per unit of risk. If you would invest  768.00  in Ecopetrol SA ADR on December 28, 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	53.33%
Values	Daily Returns

Ecopetrol SA ADR  vs.  FG Merger II

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.

FG Merger II

Risk-Adjusted Performance

Very Weak

Over the last 90 days FG Merger II has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound primary indicators, FG Merger is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Ecopetrol and FG Merger

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

The idea behind Ecopetrol SA ADR and FG Merger II 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.