Correlation Between Ecopetrol and China Vanke

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

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

Diversification Opportunities for Ecopetrol and China Vanke

-0.22

Correlation Coefficient

Ecopetrol  China Vanke

Very good diversification

The 3 months correlation between Ecopetrol and China is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Ecopetrol SA ADR and China Vanke Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Vanke and Ecopetrol 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 Ecopetrol SA ADR are associated (or correlated) with China Vanke. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Vanke has no effect on the direction of Ecopetrol i.e., Ecopetrol and China Vanke go up and down completely randomly.

Pair Corralation between Ecopetrol and China Vanke

Allowing for the 90-day total investment horizon Ecopetrol SA ADR is expected to generate 0.28 times more return on investment than China Vanke. However, Ecopetrol SA ADR is 3.52 times less risky than China Vanke. It trades about 0.19 of its potential returns per unit of risk. China Vanke Co is currently generating about 0.02 per unit of risk. If you would invest  995.00  in Ecopetrol SA ADR on March 7, 2024 and sell it today you would earn a total of  213.00  from holding Ecopetrol SA ADR or generate 21.41% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

Ecopetrol SA ADR  vs.  China Vanke Co

Ecopetrol SA ADR

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ecopetrol SA ADR are ranked lower than 14 (%) 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.

China Vanke

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in China Vanke Co are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent forward-looking signals, China Vanke may actually be approaching a critical reversion point that can send shares even higher in July 2024.

Pair Trading with Ecopetrol and China Vanke

The main advantage of trading using opposite Ecopetrol and China Vanke positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ecopetrol position performs unexpectedly, China Vanke 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 China Vanke will offset losses from the drop in China Vanke's long position.

The idea behind Ecopetrol SA ADR and China Vanke Co 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.