Correlation Between Bank Mandiri and Ecopetrol

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

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

Diversification Opportunities for Bank Mandiri and Ecopetrol

-0.73

Correlation Coefficient

Bank Mandiri  Ecopetrol

Pay attention - limited upside

The 3 months correlation between Bank and Ecopetrol is -0.73. Overlapping area represents the amount of risk that can be diversified away by holding Bank Mandiri Persero 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 Bank Mandiri 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 Bank Mandiri Persero 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 Bank Mandiri i.e., Bank Mandiri and Ecopetrol go up and down completely randomly.

Pair Corralation between Bank Mandiri and Ecopetrol

Assuming the 90 days horizon Bank Mandiri Persero is expected to under-perform the Ecopetrol. In addition to that, Bank Mandiri is 1.22 times more volatile than Ecopetrol SA ADR. It trades about -0.05 of its total potential returns per unit of risk. Ecopetrol SA ADR is currently generating about 0.22 per unit of volatility. If you would invest  768.00  in Ecopetrol SA ADR on December 29, 2024 and sell it today you would earn a total of  271.00  from holding Ecopetrol SA ADR or generate 35.29% return on investment over 90 days.

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

Bank Mandiri Persero  vs.  Ecopetrol SA ADR

Bank Mandiri Persero

Risk-Adjusted Performance

Very Weak

Over the last 90 days Bank Mandiri Persero has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

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 17 (%) 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 Bank Mandiri and Ecopetrol

The main advantage of trading using opposite Bank Mandiri and Ecopetrol positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank Mandiri 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 Bank Mandiri Persero 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.