Correlation Between Ecopetrol and Squarespace

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

Diversification Opportunities for Ecopetrol and Squarespace

-0.91

Correlation Coefficient

Ecopetrol  Squarespace

Pay attention - limited upside

The 3 months correlation between Ecopetrol and Squarespace is -0.91. Overlapping area represents the amount of risk that can be diversified away by holding Ecopetrol SA ADR and Squarespace in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Squarespace 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 Squarespace. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Squarespace has no effect on the direction of Ecopetrol i.e., Ecopetrol and Squarespace go up and down completely randomly.

Pair Corralation between Ecopetrol and Squarespace

Allowing for the 90-day total investment horizon Ecopetrol SA ADR is expected to under-perform the Squarespace. In addition to that, Ecopetrol is 5.03 times more volatile than Squarespace. It trades about -0.13 of its total potential returns per unit of risk. Squarespace is currently generating about 0.22 per unit of volatility. If you would invest  4,539  in Squarespace on September 2, 2024 and sell it today you would earn a total of  118.00  from holding Squarespace or generate 2.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	51.56%
Values	Daily Returns

Ecopetrol SA ADR  vs.  Squarespace

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 conflicting 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.

Squarespace

Risk-Adjusted Performance

0 of 100

Solid

Over the last 90 days Squarespace has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Squarespace is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Ecopetrol and Squarespace

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

The idea behind Ecopetrol SA ADR and Squarespace 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 Transaction History module to view history of all your transactions and understand their impact on performance.