Correlation Between Ecopetrol and SwissCom

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

Diversification Opportunities for Ecopetrol and SwissCom

-0.03

Correlation Coefficient

Ecopetrol  SwissCom

Good diversification

The 3 months correlation between Ecopetrol and SwissCom is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Ecopetrol SA ADR and SwissCom AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SwissCom AG 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 SwissCom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SwissCom AG has no effect on the direction of Ecopetrol i.e., Ecopetrol and SwissCom go up and down completely randomly.

Pair Corralation between Ecopetrol and SwissCom

Allowing for the 90-day total investment horizon Ecopetrol SA ADR is expected to generate 2.2 times more return on investment than SwissCom. However, Ecopetrol is 2.2 times more volatile than SwissCom AG. It trades about 0.23 of its potential returns per unit of risk. SwissCom AG is currently generating about -0.16 per unit of risk. If you would invest  795.00  in Ecopetrol SA ADR on October 15, 2024 and sell it today you would earn a total of  54.00  from holding Ecopetrol SA ADR or generate 6.79% return on investment over 90 days.

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

Ecopetrol SA ADR  vs.  SwissCom AG

Ecopetrol SA ADR

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ecopetrol SA ADR are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Ecopetrol is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

SwissCom AG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SwissCom AG 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 February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Ecopetrol and SwissCom

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

The idea behind Ecopetrol SA ADR and SwissCom AG 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.