Correlation Between Ecopetrol and Scientific Industries

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

Diversification Opportunities for Ecopetrol and Scientific Industries

0.54

Correlation Coefficient

Ecopetrol  Scientific Industries

Very weak diversification

The 3 months correlation between Ecopetrol and Scientific is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Ecopetrol SA ADR and Scientific Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Scientific Industries 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 Scientific Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Scientific Industries has no effect on the direction of Ecopetrol i.e., Ecopetrol and Scientific Industries go up and down completely randomly.

Pair Corralation between Ecopetrol and Scientific Industries

Allowing for the 90-day total investment horizon Ecopetrol SA ADR is expected to generate 0.45 times more return on investment than Scientific Industries. However, Ecopetrol SA ADR is 2.22 times less risky than Scientific Industries. It trades about 0.08 of its potential returns per unit of risk. Scientific Industries is currently generating about -0.09 per unit of risk. If you would invest  803.00  in Ecopetrol SA ADR on October 6, 2024 and sell it today you would earn a total of  23.00  from holding Ecopetrol SA ADR or generate 2.86% return on investment over 90 days.

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

Ecopetrol SA ADR  vs.  Scientific Industries

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.

Scientific Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Scientific Industries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Scientific Industries is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Ecopetrol and Scientific Industries

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

The idea behind Ecopetrol SA ADR and Scientific Industries 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.