Correlation Between Transportadora and Ecopetrol

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

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

Diversification Opportunities for Transportadora and Ecopetrol

-0.49

Correlation Coefficient

Transportadora  Ecopetrol

Very good diversification

The 3 months correlation between Transportadora and Ecopetrol is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Transportadora de Gas 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 Transportadora 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 Transportadora de Gas 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 Transportadora i.e., Transportadora and Ecopetrol go up and down completely randomly.

Pair Corralation between Transportadora and Ecopetrol

Considering the 90-day investment horizon Transportadora de Gas is expected to under-perform the Ecopetrol. In addition to that, Transportadora is 1.3 times more volatile than Ecopetrol SA ADR. It trades about -0.06 of its total potential returns per unit of risk. Ecopetrol SA ADR is currently generating about 0.2 per unit of volatility. If you would invest  803.00  in Ecopetrol SA ADR on November 28, 2024 and sell it today you would earn a total of  236.00  from holding Ecopetrol SA ADR or generate 29.39% return on investment over 90 days.

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

Transportadora de Gas  vs.  Ecopetrol SA ADR

Transportadora de Gas

Risk-Adjusted Performance

Very Weak

Over the last 90 days Transportadora de Gas has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's technical and fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private 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 15 (%) 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 Transportadora and Ecopetrol

The main advantage of trading using opposite Transportadora and Ecopetrol positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Transportadora 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 Transportadora de Gas 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.