Correlation Between Ecopetrol and Traton SE

Can any of the company-specific risk be diversified away by investing in both Ecopetrol and Traton SE 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 Traton SE into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Ecopetrol SA and Traton SE, you can compare the effects of market volatilities on Ecopetrol and Traton SE 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 Traton SE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ecopetrol and Traton SE.

Diversification Opportunities for Ecopetrol and Traton SE

0.69

Correlation Coefficient

Ecopetrol  Traton SE

Poor diversification

The 3 months correlation between Ecopetrol and Traton is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Ecopetrol SA and Traton SE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Traton SE 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 are associated (or correlated) with Traton SE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Traton SE has no effect on the direction of Ecopetrol i.e., Ecopetrol and Traton SE go up and down completely randomly.

Pair Corralation between Ecopetrol and Traton SE

Assuming the 90 days trading horizon Ecopetrol SA is expected to generate 1.06 times more return on investment than Traton SE. However, Ecopetrol is 1.06 times more volatile than Traton SE. It trades about 0.17 of its potential returns per unit of risk. Traton SE is currently generating about 0.09 per unit of risk. If you would invest  716.00  in Ecopetrol SA on December 30, 2024 and sell it today you would earn a total of  244.00  from holding Ecopetrol SA or generate 34.08% return on investment over 90 days.

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

Ecopetrol SA  vs.  Traton SE

Ecopetrol SA

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ecopetrol SA are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical indicators, Ecopetrol reported solid returns over the last few months and may actually be approaching a breakup point.

Traton SE

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Traton SE are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Traton SE reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ecopetrol and Traton SE

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

The idea behind Ecopetrol SA and Traton SE 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.