Correlation Between Ecopetrol and POWR Lithium

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

-0.63

Correlation Coefficient

Ecopetrol  POWR Lithium

Excellent diversification

The 3 months correlation between Ecopetrol and POWR is -0.63. 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 SA ADR is expected to generate 0.11 times more return on investment than POWR Lithium. However, Ecopetrol SA ADR is 9.23 times less risky than POWR Lithium. It trades about 0.1 of its potential returns per unit of risk. POWR Lithium Corp is currently generating about -0.01 per unit of risk. If you would invest  761.00  in Ecopetrol SA ADR on September 5, 2024 and sell it today you would earn a total of  29.00  from holding Ecopetrol SA ADR or generate 3.81% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.65%
Values	Daily Returns

Ecopetrol SA ADR  vs.  POWR Lithium 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.

POWR Lithium Corp

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in POWR Lithium Corp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting essential indicators, POWR Lithium reported solid returns over the last few months and may actually be approaching a breakup point.

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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.