Correlation Between Ecopetrol and Denison Mines

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

Diversification Opportunities for Ecopetrol and Denison Mines

-0.77

Correlation Coefficient

Ecopetrol  Denison Mines

Pay attention - limited upside

The 3 months correlation between Ecopetrol and Denison is -0.77. Overlapping area represents the amount of risk that can be diversified away by holding Ecopetrol SA ADR and Denison Mines Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Denison Mines Corp 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 Denison Mines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Denison Mines Corp has no effect on the direction of Ecopetrol i.e., Ecopetrol and Denison Mines go up and down completely randomly.

Pair Corralation between Ecopetrol and Denison Mines

Allowing for the 90-day total investment horizon Ecopetrol is expected to generate 1.79 times less return on investment than Denison Mines. But when comparing it to its historical volatility, Ecopetrol SA ADR is 1.68 times less risky than Denison Mines. It trades about 0.12 of its potential returns per unit of risk. Denison Mines Corp is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  207.00  in Denison Mines Corp on September 5, 2024 and sell it today you would earn a total of  17.00  from holding Denison Mines Corp or generate 8.21% return on investment over 90 days.

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

Ecopetrol SA ADR  vs.  Denison Mines Corp

Ecopetrol SA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ecopetrol SA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Denison Mines Corp

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Denison Mines Corp are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, Denison Mines displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ecopetrol and Denison Mines

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

The idea behind Ecopetrol SA ADR and Denison Mines Corp 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.