Correlation Between Eni SpA and Ecopetrol

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

By analyzing existing cross correlation between Eni SpA and Ecopetrol SA ADR, you can compare the effects of market volatilities on Eni SpA and Ecopetrol 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 Eni SpA with a short position of Ecopetrol. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eni SpA and Ecopetrol.

Diversification Opportunities for Eni SpA and Ecopetrol

-0.12

Correlation Coefficient

Eni SpA  Ecopetrol

Good diversification

The 3 months correlation between Eni and Ecopetrol is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Eni SpA and Ecopetrol SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ecopetrol SA ADR and Eni SpA 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 Eni SpA are associated (or correlated) with Ecopetrol. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ecopetrol SA ADR has no effect on the direction of Eni SpA i.e., Eni SpA and Ecopetrol go up and down completely randomly.

Pair Corralation between Eni SpA and Ecopetrol

Assuming the 90 days horizon Eni SpA is expected to under-perform the Ecopetrol. In addition to that, Eni SpA is 1.12 times more volatile than Ecopetrol SA ADR. It trades about -0.1 of its total potential returns per unit of risk. Ecopetrol SA ADR is currently generating about 0.17 per unit of volatility. If you would invest  773.00  in Ecopetrol SA ADR on September 15, 2024 and sell it today you would earn a total of  49.00  from holding Ecopetrol SA ADR or generate 6.34% return on investment over 90 days.

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

Eni SpA  vs.  Ecopetrol SA ADR

Eni SpA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eni SpA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

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.

Pair Trading with Eni SpA and Ecopetrol

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

The idea behind Eni SpA and Ecopetrol SA ADR 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.