Correlation Between SLR Investment and Ecopetrol

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

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

Diversification Opportunities for SLR Investment and Ecopetrol

-0.29

Correlation Coefficient

SLR Investment  Ecopetrol

Very good diversification

The 3 months correlation between SLR and Ecopetrol is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding SLR Investment Corp and Ecopetrol SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ecopetrol SA and SLR Investment 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 SLR Investment Corp 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 SLR Investment i.e., SLR Investment and Ecopetrol go up and down completely randomly.

Pair Corralation between SLR Investment and Ecopetrol

Assuming the 90 days horizon SLR Investment Corp is expected to generate 0.55 times more return on investment than Ecopetrol. However, SLR Investment Corp is 1.83 times less risky than Ecopetrol. It trades about -0.02 of its potential returns per unit of risk. Ecopetrol SA is currently generating about -0.11 per unit of risk. If you would invest  1,506  in SLR Investment Corp on September 22, 2024 and sell it today you would lose (11.00) from holding SLR Investment Corp or give up 0.73% of portfolio value over 90 days.

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

SLR Investment Corp  vs.  Ecopetrol SA

SLR Investment Corp

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SLR Investment Corp are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, SLR Investment reported solid returns over the last few months and may actually be approaching a breakup point.

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. In spite of latest uncertain 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.

Pair Trading with SLR Investment and Ecopetrol

The main advantage of trading using opposite SLR Investment and Ecopetrol positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SLR Investment 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 SLR Investment Corp 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.