Correlation Between BP PLC and Ecopetrol
Can any of the company-specific risk be diversified away by investing in both BP PLC 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 BP PLC and Ecopetrol into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BP PLC ADR and Ecopetrol SA ADR, you can compare the effects of market volatilities on BP PLC 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 BP PLC with a short position of Ecopetrol. Check out your portfolio center. Please also check ongoing floating volatility patterns of BP PLC and Ecopetrol.
Diversification Opportunities for BP PLC and Ecopetrol
Weak diversification
The 3 months correlation between BP PLC and Ecopetrol is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding BP PLC ADR 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 BP PLC 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 BP PLC ADR 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 BP PLC i.e., BP PLC and Ecopetrol go up and down completely randomly.
Pair Corralation between BP PLC and Ecopetrol
Allowing for the 90-day total investment horizon BP PLC ADR is expected to generate 0.45 times more return on investment than Ecopetrol. However, BP PLC ADR is 2.2 times less risky than Ecopetrol. It trades about 0.3 of its potential returns per unit of risk. Ecopetrol SA ADR is currently generating about 0.08 per unit of risk. If you would invest 3,532 in BP PLC ADR on January 27, 2024 and sell it today you would earn a total of 416.00 from holding BP PLC ADR or generate 11.78% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
BP PLC ADR vs. Ecopetrol SA ADR
Performance |
| Timeline |
| BP PLC ADR |
| Ecopetrol SA ADR |
BP PLC and Ecopetrol Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BP PLC and Ecopetrol
The main advantage of trading using opposite BP PLC and Ecopetrol positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BP PLC 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.| BP PLC vs. Shell PLC ADR | BP PLC vs. Petroleo Brasileiro Petrobras | BP PLC vs. TotalEnergies SE ADR | BP PLC vs. Imperial Oil |
| Ecopetrol vs. Shell PLC ADR | Ecopetrol vs. Petroleo Brasileiro Petrobras | Ecopetrol vs. TotalEnergies SE ADR | Ecopetrol vs. Imperial Oil |
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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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