Correlation Between Ecopetrol and AlzChem Group

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

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

Diversification Opportunities for Ecopetrol and AlzChem Group

-0.51

Correlation Coefficient

Ecopetrol  AlzChem Group

Excellent diversification

The 3 months correlation between Ecopetrol and AlzChem is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Ecopetrol SA and AlzChem Group AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AlzChem Group AG 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 AlzChem Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AlzChem Group AG has no effect on the direction of Ecopetrol i.e., Ecopetrol and AlzChem Group go up and down completely randomly.

Pair Corralation between Ecopetrol and AlzChem Group

Assuming the 90 days trading horizon Ecopetrol SA is expected to under-perform the AlzChem Group. But the stock apears to be less risky and, when comparing its historical volatility, Ecopetrol SA is 1.58 times less risky than AlzChem Group. The stock trades about -0.02 of its potential returns per unit of risk. The AlzChem Group AG is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  4,070  in AlzChem Group AG on September 17, 2024 and sell it today you would earn a total of  1,670  from holding AlzChem Group AG or generate 41.03% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Ecopetrol SA  vs.  AlzChem Group AG

Ecopetrol SA

Risk-Adjusted Performance

0 of 100

Very Weak

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

AlzChem Group AG

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in AlzChem Group AG are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, AlzChem Group exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ecopetrol and AlzChem Group

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

The idea behind Ecopetrol SA and AlzChem Group AG 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.