Correlation Between Ecopetrol and YPF Sociedad

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

Diversification Opportunities for Ecopetrol and YPF Sociedad

-0.57

Correlation Coefficient

Ecopetrol  YPF Sociedad

Excellent diversification

The 3 months correlation between Ecopetrol and YPF is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Ecopetrol SA ADR and YPF Sociedad Anonima in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on YPF Sociedad Anonima 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 YPF Sociedad. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of YPF Sociedad Anonima has no effect on the direction of Ecopetrol i.e., Ecopetrol and YPF Sociedad go up and down completely randomly.

Pair Corralation between Ecopetrol and YPF Sociedad

Allowing for the 90-day total investment horizon Ecopetrol SA ADR is expected to under-perform the YPF Sociedad. But the stock apears to be less risky and, when comparing its historical volatility, Ecopetrol SA ADR is 1.34 times less risky than YPF Sociedad. The stock trades about -0.16 of its potential returns per unit of risk. The YPF Sociedad Anonima is currently generating about 0.34 of returns per unit of risk over similar time horizon. If you would invest  2,370  in YPF Sociedad Anonima on August 30, 2024 and sell it today you would earn a total of  1,601  from holding YPF Sociedad Anonima or generate 67.55% return on investment over 90 days.

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

Ecopetrol SA ADR  vs.  YPF Sociedad Anonima

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 December 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

YPF Sociedad Anonima

Risk-Adjusted Performance

26 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in YPF Sociedad Anonima are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, YPF Sociedad reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ecopetrol and YPF Sociedad

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

The idea behind Ecopetrol SA ADR and YPF Sociedad Anonima 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.