Correlation Between Ecopetrol and SEB SA

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

Diversification Opportunities for Ecopetrol and SEB SA

-0.74

Correlation Coefficient

Ecopetrol  SEB SA

Pay attention - limited upside

The 3 months correlation between Ecopetrol and SEB is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding Ecopetrol SA ADR and SEB SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SEB SA 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 SEB SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SEB SA has no effect on the direction of Ecopetrol i.e., Ecopetrol and SEB SA go up and down completely randomly.

Pair Corralation between Ecopetrol and SEB SA

Allowing for the 90-day total investment horizon Ecopetrol is expected to generate 1.4 times less return on investment than SEB SA. In addition to that, Ecopetrol is 1.01 times more volatile than SEB SA. It trades about 0.03 of its total potential returns per unit of risk. SEB SA is currently generating about 0.04 per unit of volatility. If you would invest  947.00  in SEB SA on September 3, 2024 and sell it today you would earn a total of  255.00  from holding SEB SA or generate 26.93% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	70.91%
Values	Daily Returns

Ecopetrol SA ADR  vs.  SEB SA

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.

SEB SA

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SEB SA are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting basic indicators, SEB SA showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ecopetrol and SEB SA

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

The idea behind Ecopetrol SA ADR and SEB SA 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.