Correlation Between Ecopetrol and GAMCO Natural

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

Diversification Opportunities for Ecopetrol and GAMCO Natural

0.58

Correlation Coefficient

Ecopetrol  GAMCO Natural

Very weak diversification

The 3 months correlation between Ecopetrol and GAMCO is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Ecopetrol SA ADR and GAMCO Natural Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GAMCO Natural Resources 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 GAMCO Natural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GAMCO Natural Resources has no effect on the direction of Ecopetrol i.e., Ecopetrol and GAMCO Natural go up and down completely randomly.

Pair Corralation between Ecopetrol and GAMCO Natural

Allowing for the 90-day total investment horizon Ecopetrol SA ADR is expected to generate 2.47 times more return on investment than GAMCO Natural. However, Ecopetrol is 2.47 times more volatile than GAMCO Natural Resources. It trades about 0.02 of its potential returns per unit of risk. GAMCO Natural Resources is currently generating about 0.01 per unit of risk. If you would invest  753.00  in Ecopetrol SA ADR on October 3, 2024 and sell it today you would earn a total of  39.00  from holding Ecopetrol SA ADR or generate 5.18% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.79%
Values	Daily Returns

Ecopetrol SA ADR  vs.  GAMCO Natural Resources

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 latest weak performance, the Stock's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

GAMCO Natural Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GAMCO Natural Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Preferred Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Ecopetrol and GAMCO Natural

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

The idea behind Ecopetrol SA ADR and GAMCO Natural Resources 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 Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.