Correlation Between ScanSource and Ecopetrol

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

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

Diversification Opportunities for ScanSource and Ecopetrol

-0.15

Correlation Coefficient

ScanSource  Ecopetrol

Good diversification

The 3 months correlation between ScanSource and Ecopetrol is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding ScanSource and Ecopetrol SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ecopetrol SA and ScanSource 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 ScanSource 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 ScanSource i.e., ScanSource and Ecopetrol go up and down completely randomly.

Pair Corralation between ScanSource and Ecopetrol

Assuming the 90 days horizon ScanSource is expected to generate 1.25 times more return on investment than Ecopetrol. However, ScanSource is 1.25 times more volatile than Ecopetrol SA. It trades about 0.11 of its potential returns per unit of risk. Ecopetrol SA is currently generating about -0.01 per unit of risk. If you would invest  4,440  in ScanSource on September 20, 2024 and sell it today you would earn a total of  540.00  from holding ScanSource or generate 12.16% return on investment over 90 days.

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

ScanSource  vs.  Ecopetrol SA

ScanSource

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ScanSource are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, ScanSource reported solid returns over the last few months and may actually be approaching a breakup point.

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. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with ScanSource and Ecopetrol

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

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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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.