Correlation Between Ecopetrol and Sands China

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

Diversification Opportunities for Ecopetrol and Sands China

-0.8

Correlation Coefficient

Ecopetrol  Sands China

Pay attention - limited upside

The 3 months correlation between Ecopetrol and Sands is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding Ecopetrol SA ADR and Sands China Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sands China 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 Sands China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sands China has no effect on the direction of Ecopetrol i.e., Ecopetrol and Sands China go up and down completely randomly.

Pair Corralation between Ecopetrol and Sands China

Allowing for the 90-day total investment horizon Ecopetrol SA ADR is expected to generate 1.16 times more return on investment than Sands China. However, Ecopetrol is 1.16 times more volatile than Sands China Ltd. It trades about 0.2 of its potential returns per unit of risk. Sands China Ltd 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  253.00  from holding Ecopetrol SA ADR or generate 32.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	98.36%
Values	Daily Returns

Ecopetrol SA ADR  vs.  Sands China Ltd

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.

Sands China

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sands China Ltd 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 basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Ecopetrol and Sands China

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

The idea behind Ecopetrol SA ADR and Sands China Ltd 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.

Check out your portfolio center.

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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.