Correlation Between Ecopetrol and Exxon Mobil

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

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

Diversification Opportunities for Ecopetrol and Exxon Mobil

-0.5

Correlation Coefficient

Ecopetrol  Exxon Mobil

Very good diversification

The 3 months correlation between Ecopetrol and Exxon is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Ecopetrol SA and Exxon Mobil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Exxon Mobil 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 Exxon Mobil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Exxon Mobil has no effect on the direction of Ecopetrol i.e., Ecopetrol and Exxon Mobil go up and down completely randomly.

Pair Corralation between Ecopetrol and Exxon Mobil

Assuming the 90 days trading horizon Ecopetrol is expected to generate 3.95 times less return on investment than Exxon Mobil. In addition to that, Ecopetrol is 1.62 times more volatile than Exxon Mobil. It trades about 0.01 of its total potential returns per unit of risk. Exxon Mobil is currently generating about 0.05 per unit of volatility. If you would invest  8,791  in Exxon Mobil on September 12, 2024 and sell it today you would earn a total of  1,987  from holding Exxon Mobil or generate 22.6% 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  vs.  Exxon Mobil

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 latest fragile performance, the Stock's technical indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Exxon Mobil

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Exxon Mobil are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Exxon Mobil may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Ecopetrol and Exxon Mobil

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

The idea behind Ecopetrol SA and Exxon Mobil 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.