Correlation Between Selective Insurance and Ecopetrol

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

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

Diversification Opportunities for Selective Insurance and Ecopetrol

-0.78

Correlation Coefficient

Selective Insurance  Ecopetrol

Pay attention - limited upside

The 3 months correlation between Selective and Ecopetrol is -0.78. Overlapping area represents the amount of risk that can be diversified away by holding Selective Insurance Group and Ecopetrol SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ecopetrol SA and Selective Insurance 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 Selective Insurance Group 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 Selective Insurance i.e., Selective Insurance and Ecopetrol go up and down completely randomly.

Pair Corralation between Selective Insurance and Ecopetrol

Assuming the 90 days horizon Selective Insurance Group is expected to under-perform the Ecopetrol. In addition to that, Selective Insurance is 1.32 times more volatile than Ecopetrol SA. It trades about -0.01 of its total potential returns per unit of risk. Ecopetrol SA is currently generating about 0.18 per unit of volatility. If you would invest  714.00  in Ecopetrol SA on December 25, 2024 and sell it today you would earn a total of  216.00  from holding Ecopetrol SA or generate 30.25% return on investment over 90 days.

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

Selective Insurance Group  vs.  Ecopetrol SA

Selective Insurance

Risk-Adjusted Performance

Very Weak

Over the last 90 days Selective Insurance Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Selective Insurance 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. In spite of comparatively unsteady basic indicators, Ecopetrol unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Selective Insurance and Ecopetrol

The main advantage of trading using opposite Selective Insurance and Ecopetrol positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Selective Insurance 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 Selective Insurance Group 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.