Correlation Between Transport International and Ecopetrol

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

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

Diversification Opportunities for Transport International and Ecopetrol

-0.29

Correlation Coefficient

Transport International  Ecopetrol

Very good diversification

The 3 months correlation between Transport and Ecopetrol is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Transport International Holdin and Ecopetrol SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ecopetrol SA and Transport International 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 Transport International Holdings 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 has no effect on the direction of Transport International i.e., Transport International and Ecopetrol go up and down completely randomly.

Pair Corralation between Transport International and Ecopetrol

Assuming the 90 days horizon Transport International is expected to generate 9.95 times less return on investment than Ecopetrol. But when comparing it to its historical volatility, Transport International Holdings is 1.52 times less risky than Ecopetrol. It trades about 0.03 of its potential returns per unit of risk. Ecopetrol SA is currently generating about 0.17 of returns per unit of risk over similar time horizon. 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 Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Transport International Holdin  vs.  Ecopetrol SA

Transport International

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Transport International Holdings are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Transport International is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

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.

Pair Trading with Transport International and Ecopetrol

The main advantage of trading using opposite Transport International and Ecopetrol positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Transport International 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 Transport International Holdings and Ecopetrol SA 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.