Correlation Between Ecopetrol and Macmahon Holdings

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

Diversification Opportunities for Ecopetrol and Macmahon Holdings

-0.78

Correlation Coefficient

Ecopetrol  Macmahon Holdings

Pay attention - limited upside

The 3 months correlation between Ecopetrol and Macmahon is -0.78. Overlapping area represents the amount of risk that can be diversified away by holding Ecopetrol SA ADR and Macmahon Holdings Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Macmahon Holdings 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 Macmahon Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Macmahon Holdings has no effect on the direction of Ecopetrol i.e., Ecopetrol and Macmahon Holdings go up and down completely randomly.

Pair Corralation between Ecopetrol and Macmahon Holdings

Allowing for the 90-day total investment horizon Ecopetrol SA ADR is expected to generate 2.1 times more return on investment than Macmahon Holdings. However, Ecopetrol is 2.1 times more volatile than Macmahon Holdings Limited. It trades about 0.2 of its potential returns per unit of risk. Macmahon Holdings Limited is currently generating about -0.13 per unit of risk. If you would invest  768.00  in Ecopetrol SA ADR on December 30, 2024 and sell it today you would earn a total of  254.00  from holding Ecopetrol SA ADR or generate 33.07% return on investment over 90 days.

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

Ecopetrol SA ADR  vs.  Macmahon Holdings Limited

Ecopetrol SA ADR

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ecopetrol SA ADR are ranked lower than 15 (%) 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.

Macmahon Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Macmahon Holdings Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest inconsistent performance, the Stock's technical indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Ecopetrol and Macmahon Holdings

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

The idea behind Ecopetrol SA ADR and Macmahon Holdings Limited 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.