Correlation Between Ecopetrol and Top Glove

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

Diversification Opportunities for Ecopetrol and Top Glove

-0.02

Correlation Coefficient

Ecopetrol  Top Glove

Good diversification

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

Pair Corralation between Ecopetrol and Top Glove

Allowing for the 90-day total investment horizon Ecopetrol is expected to generate 11.94 times less return on investment than Top Glove. But when comparing it to its historical volatility, Ecopetrol SA ADR is 3.45 times less risky than Top Glove. It trades about 0.02 of its potential returns per unit of risk. Top Glove is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  23.00  in Top Glove on October 15, 2024 and sell it today you would earn a total of  6.00  from holding Top Glove or generate 26.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.88%
Values	Daily Returns

Ecopetrol SA ADR  vs.  Top Glove

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.

Top Glove

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Top Glove are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Top Glove reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ecopetrol and Top Glove

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

The idea behind Ecopetrol SA ADR and Top Glove 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.

Check out your portfolio center.

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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.