Correlation Between Amada and Ecopetrol
Can any of the company-specific risk be diversified away by investing in both Amada 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 Amada and Ecopetrol into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Amada Co and Ecopetrol SA ADR, you can compare the effects of market volatilities on Amada 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 Amada with a short position of Ecopetrol. Check out your portfolio center. Please also check ongoing floating volatility patterns of Amada and Ecopetrol.
Diversification Opportunities for Amada and Ecopetrol
Good diversification
The 3 months correlation between Amada and Ecopetrol is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Amada Co 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 Amada 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 Amada Co 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 Amada i.e., Amada and Ecopetrol go up and down completely randomly.
Pair Corralation between Amada and Ecopetrol
Assuming the 90 days horizon Amada Co is expected to under-perform the Ecopetrol. But the otc stock apears to be less risky and, when comparing its historical volatility, Amada Co is 1.37 times less risky than Ecopetrol. The otc stock trades about -0.3 of its potential returns per unit of risk. The Ecopetrol SA ADR is currently generating about 0.31 of returns per unit of risk over similar time horizon. If you would invest 1,030 in Ecopetrol SA ADR on January 26, 2024 and sell it today you would earn a total of 139.00 from holding Ecopetrol SA ADR or generate 13.5% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Amada Co vs. Ecopetrol SA ADR
Performance |
| Timeline |
| Amada |
| Ecopetrol SA ADR |
Amada and Ecopetrol Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Amada and Ecopetrol
The main advantage of trading using opposite Amada and Ecopetrol positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amada 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 Amada Co and Ecopetrol SA ADR 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.| Ecopetrol vs. Petroleo Brasileiro Petrobras | Ecopetrol vs. Equinor ASA ADR | Ecopetrol vs. Eni SpA ADR | Ecopetrol vs. Cenovus Energy |
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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..
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