Correlation Between Ecopetrol and CASTA DIVA

Can any of the company-specific risk be diversified away by investing in both Ecopetrol and CASTA DIVA 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 CASTA DIVA into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Ecopetrol SA and CASTA DIVA GROUP, you can compare the effects of market volatilities on Ecopetrol and CASTA DIVA 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 CASTA DIVA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ecopetrol and CASTA DIVA.

Diversification Opportunities for Ecopetrol and CASTA DIVA

-0.6

Correlation Coefficient

Ecopetrol  CASTA DIVA

Excellent diversification

The 3 months correlation between Ecopetrol and CASTA is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Ecopetrol SA and CASTA DIVA GROUP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CASTA DIVA GROUP 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 are associated (or correlated) with CASTA DIVA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CASTA DIVA GROUP has no effect on the direction of Ecopetrol i.e., Ecopetrol and CASTA DIVA go up and down completely randomly.

Pair Corralation between Ecopetrol and CASTA DIVA

Assuming the 90 days trading horizon Ecopetrol SA is expected to generate 0.86 times more return on investment than CASTA DIVA. However, Ecopetrol SA is 1.16 times less risky than CASTA DIVA. It trades about 0.15 of its potential returns per unit of risk. CASTA DIVA GROUP is currently generating about -0.05 per unit of risk. If you would invest  746.00  in Ecopetrol SA on September 17, 2024 and sell it today you would earn a total of  52.00  from holding Ecopetrol SA or generate 6.97% return on investment over 90 days.

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

Ecopetrol SA  vs.  CASTA DIVA GROUP

Ecopetrol SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ecopetrol SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical indicators, Ecopetrol is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

CASTA DIVA GROUP

Risk-Adjusted Performance

9 of 100

OK

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

Pair Trading with Ecopetrol and CASTA DIVA

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

The idea behind Ecopetrol SA and CASTA DIVA GROUP 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.