Correlation Between Ecopetrol and China Petroleum

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

Diversification Opportunities for Ecopetrol and China Petroleum

0.02

Correlation Coefficient

Ecopetrol  China Petroleum

Significant diversification

The 3 months correlation between Ecopetrol and China is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Ecopetrol SA ADR and China Petroleum Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Petroleum Chemical 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 China Petroleum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Petroleum Chemical has no effect on the direction of Ecopetrol i.e., Ecopetrol and China Petroleum go up and down completely randomly.

Pair Corralation between Ecopetrol and China Petroleum

Allowing for the 90-day total investment horizon Ecopetrol SA ADR is expected to generate 0.66 times more return on investment than China Petroleum. However, Ecopetrol SA ADR is 1.5 times less risky than China Petroleum. It trades about 0.22 of its potential returns per unit of risk. China Petroleum Chemical is currently generating about 0.01 per unit of risk. If you would invest  755.00  in Ecopetrol SA ADR on December 26, 2024 and sell it today you would earn a total of  276.00  from holding Ecopetrol SA ADR or generate 36.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

Ecopetrol SA ADR  vs.  China Petroleum Chemical

Ecopetrol SA ADR

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ecopetrol SA ADR are ranked lower than 17 (%) 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.

China Petroleum Chemical

Risk-Adjusted Performance

Very Weak

Over the last 90 days China Petroleum Chemical has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable primary indicators, China Petroleum is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Ecopetrol and China Petroleum

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

The idea behind Ecopetrol SA ADR and China Petroleum Chemical 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.