Correlation Between Ecopetrol and QNB Corp

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

Diversification Opportunities for Ecopetrol and QNB Corp

-0.69

Correlation Coefficient

Ecopetrol  QNB Corp

Excellent diversification

The 3 months correlation between Ecopetrol and QNB is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Ecopetrol SA ADR and QNB Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on QNB Corp 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 QNB Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of QNB Corp has no effect on the direction of Ecopetrol i.e., Ecopetrol and QNB Corp go up and down completely randomly.

Pair Corralation between Ecopetrol and QNB Corp

Allowing for the 90-day total investment horizon Ecopetrol is expected to generate 1.05 times less return on investment than QNB Corp. In addition to that, Ecopetrol is 2.78 times more volatile than QNB Corp. It trades about 0.12 of its total potential returns per unit of risk. QNB Corp is currently generating about 0.34 per unit of volatility. If you would invest  3,140  in QNB Corp on September 5, 2024 and sell it today you would earn a total of  160.00  from holding QNB Corp or generate 5.1% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Ecopetrol SA ADR  vs.  QNB Corp

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 weak performance in the last few months, the Stock's fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

QNB Corp

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in QNB Corp are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating fundamental drivers, QNB Corp may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Ecopetrol and QNB Corp

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

The idea behind Ecopetrol SA ADR and QNB Corp 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.