Correlation Between Ecopetrol and POWR Lithium

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

Diversification Opportunities for Ecopetrol and POWR Lithium

-0.66
  Correlation Coefficient

Excellent diversification

The 3 months correlation between Ecopetrol and POWR is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Ecopetrol SA ADR and POWR Lithium Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on POWR Lithium 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 POWR Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of POWR Lithium Corp has no effect on the direction of Ecopetrol i.e., Ecopetrol and POWR Lithium go up and down completely randomly.

Pair Corralation between Ecopetrol and POWR Lithium

Allowing for the 90-day total investment horizon Ecopetrol is expected to generate 17.08 times less return on investment than POWR Lithium. But when comparing it to its historical volatility, Ecopetrol SA ADR is 12.49 times less risky than POWR Lithium. It trades about 0.03 of its potential returns per unit of risk. POWR Lithium Corp is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  30.00  in POWR Lithium Corp on September 6, 2024 and sell it today you would lose (24.10) from holding POWR Lithium Corp or give up 80.33% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthWeak
Accuracy94.34%
ValuesDaily Returns

Ecopetrol SA ADR  vs.  POWR Lithium Corp

 Performance 
       Timeline  
Ecopetrol SA ADR 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
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.
POWR Lithium Corp 

Risk-Adjusted Performance

10 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in POWR Lithium Corp are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile essential indicators, POWR Lithium reported solid returns over the last few months and may actually be approaching a breakup point.

Ecopetrol and POWR Lithium Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Ecopetrol and POWR Lithium

The main advantage of trading using opposite Ecopetrol and POWR Lithium positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ecopetrol position performs unexpectedly, POWR Lithium 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 POWR Lithium will offset losses from the drop in POWR Lithium's long position.
The idea behind Ecopetrol SA ADR and POWR Lithium 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.

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