Correlation Between Equinor ASA and Ecopetrol

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

By analyzing existing cross correlation between Equinor ASA ADR and Ecopetrol SA ADR, you can compare the effects of market volatilities on Equinor ASA and Ecopetrol 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 Equinor ASA with a short position of Ecopetrol. Check out your portfolio center. Please also check ongoing floating volatility patterns of Equinor ASA and Ecopetrol.

Diversification Opportunities for Equinor ASA and Ecopetrol

-0.02

Correlation Coefficient

Equinor ASA  Ecopetrol

Good diversification

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

Pair Corralation between Equinor ASA and Ecopetrol

Given the investment horizon of 90 days Equinor ASA is expected to generate 2.21 times less return on investment than Ecopetrol. But when comparing it to its historical volatility, Equinor ASA ADR is 1.22 times less risky than Ecopetrol. It trades about 0.11 of its potential returns per unit of risk. Ecopetrol SA ADR is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  768.00  in Ecopetrol SA ADR on December 29, 2024 and sell it today you would earn a total of  254.00  from holding Ecopetrol SA ADR or generate 33.07% return on investment over 90 days.

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

Equinor ASA ADR  vs.  Ecopetrol SA ADR

Equinor ASA ADR

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Equinor ASA ADR are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting basic indicators, Equinor ASA reported solid returns over the last few months and may actually be approaching a breakup point.

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 16 (%) 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.

Pair Trading with Equinor ASA and Ecopetrol

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

The idea behind Equinor ASA ADR and Ecopetrol SA ADR 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.