Correlation Between Ecopetrol and Eni SpA

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

Diversification Opportunities for Ecopetrol and Eni SpA

-0.12

Correlation Coefficient

Ecopetrol  Eni SpA

Good diversification

The 3 months correlation between Ecopetrol and Eni is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Ecopetrol SA ADR and Eni SpA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eni SpA 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 Eni SpA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eni SpA has no effect on the direction of Ecopetrol i.e., Ecopetrol and Eni SpA go up and down completely randomly.

Pair Corralation between Ecopetrol and Eni SpA

Allowing for the 90-day total investment horizon Ecopetrol SA ADR is expected to generate 0.9 times more return on investment than Eni SpA. However, Ecopetrol SA ADR is 1.12 times less risky than Eni SpA. It trades about 0.17 of its potential returns per unit of risk. Eni SpA is currently generating about -0.1 per unit of risk. If you would invest  773.00  in Ecopetrol SA ADR on September 15, 2024 and sell it today you would earn a total of  49.00  from holding Ecopetrol SA ADR or generate 6.34% return on investment over 90 days.

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

Ecopetrol SA ADR  vs.  Eni SpA

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 latest inconsistent performance, the Stock's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Eni SpA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eni SpA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Ecopetrol and Eni SpA

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

The idea behind Ecopetrol SA ADR and Eni SpA 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.