Correlation Between TotalEnergies and Ecopetrol

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

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

Diversification Opportunities for TotalEnergies and Ecopetrol

0.39

Correlation Coefficient

TotalEnergies  Ecopetrol

Weak diversification

The 3 months correlation between TotalEnergies and Ecopetrol is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding TotalEnergies SE and Ecopetrol SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ecopetrol SA and TotalEnergies 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 TotalEnergies SE 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 TotalEnergies i.e., TotalEnergies and Ecopetrol go up and down completely randomly.

Pair Corralation between TotalEnergies and Ecopetrol

Assuming the 90 days trading horizon TotalEnergies SE is expected to under-perform the Ecopetrol. But the stock apears to be less risky and, when comparing its historical volatility, TotalEnergies SE is 1.76 times less risky than Ecopetrol. The stock trades about -0.22 of its potential returns per unit of risk. The Ecopetrol SA is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  760.00  in Ecopetrol SA on September 27, 2024 and sell it today you would lose (20.00) from holding Ecopetrol SA or give up 2.63% of portfolio value over 90 days.

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

TotalEnergies SE  vs.  Ecopetrol SA

TotalEnergies SE

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TotalEnergies SE has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

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. Despite latest fragile performance, the Stock's technical indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with TotalEnergies and Ecopetrol

The main advantage of trading using opposite TotalEnergies and Ecopetrol positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TotalEnergies 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 TotalEnergies SE 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.