Correlation Between NXP Semiconductors and Ecopetrol

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

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

Diversification Opportunities for NXP Semiconductors and Ecopetrol

-0.37

Correlation Coefficient

NXP Semiconductors  Ecopetrol

Very good diversification

The 3 months correlation between NXP and Ecopetrol is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding NXP Semiconductors NV and Ecopetrol SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ecopetrol SA and NXP Semiconductors 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 NXP Semiconductors NV 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 NXP Semiconductors i.e., NXP Semiconductors and Ecopetrol go up and down completely randomly.

Pair Corralation between NXP Semiconductors and Ecopetrol

Assuming the 90 days trading horizon NXP Semiconductors is expected to generate 19.49 times less return on investment than Ecopetrol. But when comparing it to its historical volatility, NXP Semiconductors NV is 2.53 times less risky than Ecopetrol. It trades about 0.02 of its potential returns per unit of risk. Ecopetrol SA is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  722.00  in Ecopetrol SA on October 26, 2024 and sell it today you would earn a total of  84.00  from holding Ecopetrol SA or generate 11.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	94.74%
Values	Daily Returns

NXP Semiconductors NV  vs.  Ecopetrol SA

NXP Semiconductors

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NXP Semiconductors NV has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady 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.

Ecopetrol SA

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Ecopetrol SA are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical indicators, Ecopetrol may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with NXP Semiconductors and Ecopetrol

The main advantage of trading using opposite NXP Semiconductors and Ecopetrol positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NXP Semiconductors 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 NXP Semiconductors NV 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.