Correlation Between Ecopetrol and Unit

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

Diversification Opportunities for Ecopetrol and Unit

0.49

Correlation Coefficient

Ecopetrol  Unit

Very weak diversification

The 3 months correlation between Ecopetrol and Unit is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Ecopetrol SA ADR and Unit Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Unit 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 Unit. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Unit has no effect on the direction of Ecopetrol i.e., Ecopetrol and Unit go up and down completely randomly.

Pair Corralation between Ecopetrol and Unit

Allowing for the 90-day total investment horizon Ecopetrol SA ADR is expected to under-perform the Unit. But the stock apears to be less risky and, when comparing its historical volatility, Ecopetrol SA ADR is 1.22 times less risky than Unit. The stock trades about -0.09 of its potential returns per unit of risk. The Unit Corporation is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  3,100  in Unit Corporation on September 15, 2024 and sell it today you would earn a total of  274.00  from holding Unit Corporation or generate 8.84% 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.  Unit 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 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.

Unit

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Unit Corporation are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Unit may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Ecopetrol and Unit

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

The idea behind Ecopetrol SA ADR and Unit Corporation 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.