Correlation Between Biotron and Ecopetrol
Can any of the company-specific risk be diversified away by investing in both Biotron 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 Biotron and Ecopetrol into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Biotron Limited and Ecopetrol SA ADR, you can compare the effects of market volatilities on Biotron 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 Biotron with a short position of Ecopetrol. Check out your portfolio center. Please also check ongoing floating volatility patterns of Biotron and Ecopetrol.
Diversification Opportunities for Biotron and Ecopetrol
Poor diversification
The 3 months correlation between Biotron and Ecopetrol is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Biotron Limited 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 Biotron 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 Biotron Limited 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 Biotron i.e., Biotron and Ecopetrol go up and down completely randomly.
Pair Corralation between Biotron and Ecopetrol
Assuming the 90 days horizon Biotron Limited is expected to generate 2.22 times more return on investment than Ecopetrol. However, Biotron is 2.22 times more volatile than Ecopetrol SA ADR. It trades about 0.22 of its potential returns per unit of risk. Ecopetrol SA ADR is currently generating about 0.28 per unit of risk. If you would invest 4.88 in Biotron Limited on January 24, 2024 and sell it today you would earn a total of 0.97 from holding Biotron Limited or generate 19.88% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.24% |
| Values | Daily Returns |
Biotron Limited vs. Ecopetrol SA ADR
Performance |
| Timeline |
| Biotron Limited |
| Ecopetrol SA ADR |
Biotron and Ecopetrol Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Biotron and Ecopetrol
The main advantage of trading using opposite Biotron and Ecopetrol positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Biotron 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.| Biotron vs. biOasis Technologies | Biotron vs. Covalon Technologies | Biotron vs. Ceapro Inc | Biotron vs. Resverlogix Corp |
Check out your portfolio center.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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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