Correlation Between CARSALES and Ecopetrol

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

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

Diversification Opportunities for CARSALES and Ecopetrol

-0.13

Correlation Coefficient

CARSALES  Ecopetrol

Good diversification

The 3 months correlation between CARSALES and Ecopetrol is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding CARSALESCOM and Ecopetrol SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ecopetrol SA and CARSALES 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 CARSALESCOM 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 CARSALES i.e., CARSALES and Ecopetrol go up and down completely randomly.

Pair Corralation between CARSALES and Ecopetrol

Assuming the 90 days trading horizon CARSALES is expected to generate 3.81 times less return on investment than Ecopetrol. In addition to that, CARSALES is 1.07 times more volatile than Ecopetrol SA. It trades about 0.09 of its total potential returns per unit of risk. Ecopetrol SA is currently generating about 0.37 per unit of volatility. If you would invest  728.00  in Ecopetrol SA on October 23, 2024 and sell it today you would earn a total of  84.00  from holding Ecopetrol SA or generate 11.54% return on investment over 90 days.

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

CARSALESCOM  vs.  Ecopetrol SA

CARSALESCOM

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CARSALESCOM are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, CARSALES is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Ecopetrol SA

Risk-Adjusted Performance

7 of 100

OK

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

Pair Trading with CARSALES and Ecopetrol

The main advantage of trading using opposite CARSALES and Ecopetrol positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CARSALES 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 CARSALESCOM 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.