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 ADR, 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
The 3 months correlation between TotalEnergies and Ecopetrol is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding TotalEnergies SE 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 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 ADR 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 horizon TotalEnergies SE is expected to under-perform the Ecopetrol. In addition to that, TotalEnergies is 1.17 times more volatile than Ecopetrol SA ADR. It trades about -0.07 of its total potential returns per unit of risk. Ecopetrol SA ADR is currently generating about 0.15 per unit of volatility. If you would invest 1,161 in Ecopetrol SA ADR on March 6, 2024 and sell it today you would earn a total of 57.00 from holding Ecopetrol SA ADR or generate 4.91% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in TotalEnergies SE are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, TotalEnergies may actually be approaching a critical reversion point that can send shares even higher in July 2024.
Compared to the overall equity markets, risk-adjusted returns on investments in Ecopetrol SA ADR are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental indicators, Ecopetrol exhibited solid returns over the last few months and may actually be approaching a breakup point.