Correlation Between Ecopetrol and Planet Fitness

Can any of the company-specific risk be diversified away by investing in both Ecopetrol and Planet Fitness 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 Planet Fitness 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 Planet Fitness, you can compare the effects of market volatilities on Ecopetrol and Planet Fitness 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 Planet Fitness. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ecopetrol and Planet Fitness.

Diversification Opportunities for Ecopetrol and Planet Fitness

0.46

Correlation Coefficient

Ecopetrol  Planet Fitness

Very weak diversification

The 3 months correlation between Ecopetrol and Planet is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Ecopetrol SA ADR and Planet Fitness in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Planet Fitness 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 Planet Fitness. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Planet Fitness has no effect on the direction of Ecopetrol i.e., Ecopetrol and Planet Fitness go up and down completely randomly.

Pair Corralation between Ecopetrol and Planet Fitness

Allowing for the 90-day total investment horizon Ecopetrol is expected to generate 1.33 times less return on investment than Planet Fitness. But when comparing it to its historical volatility, Ecopetrol SA ADR is 1.31 times less risky than Planet Fitness. It trades about 0.15 of its potential returns per unit of risk. Planet Fitness is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  5,971  in Planet Fitness on March 17, 2024 and sell it today you would earn a total of  1,279  from holding Planet Fitness or generate 21.42% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Ecopetrol SA ADR  vs.  Planet Fitness

Ecopetrol SA ADR

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ecopetrol SA ADR are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting fundamental indicators, Ecopetrol exhibited solid returns over the last few months and may actually be approaching a breakup point.

Planet Fitness

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Planet Fitness are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Planet Fitness unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ecopetrol and Planet Fitness

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

The idea behind Ecopetrol SA ADR and Planet Fitness 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 Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.