Correlation Between Imperial Oil and Ecopetrol

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

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

Diversification Opportunities for Imperial Oil and Ecopetrol

0.21

Correlation Coefficient

Imperial Oil  Ecopetrol

Modest diversification

The 3 months correlation between Imperial and Ecopetrol is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Imperial Oil 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 Imperial Oil 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 Imperial Oil 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 Imperial Oil i.e., Imperial Oil and Ecopetrol go up and down completely randomly.

Pair Corralation between Imperial Oil and Ecopetrol

Considering the 90-day investment horizon Imperial Oil is expected to under-perform the Ecopetrol. But the stock apears to be less risky and, when comparing its historical volatility, Imperial Oil is 1.18 times less risky than Ecopetrol. The stock trades about -0.06 of its potential returns per unit of risk. The Ecopetrol SA ADR is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  793.00  in Ecopetrol SA ADR on December 1, 2024 and sell it today you would earn a total of  198.00  from holding Ecopetrol SA ADR or generate 24.97% return on investment over 90 days.

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

Imperial Oil  vs.  Ecopetrol SA ADR

Imperial Oil

Risk-Adjusted Performance

Very Weak

Over the last 90 days Imperial Oil has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's primary indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Ecopetrol SA ADR

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ecopetrol SA ADR are ranked lower than 13 (%) 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 Imperial Oil and Ecopetrol

The main advantage of trading using opposite Imperial Oil and Ecopetrol positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Imperial Oil 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 Imperial Oil 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.

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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.