Correlation Between JAPAN TOBACCO and Ecopetrol

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

By analyzing existing cross correlation between JAPAN TOBACCO UNSPADR12 and Ecopetrol SA, you can compare the effects of market volatilities on JAPAN TOBACCO 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 JAPAN TOBACCO with a short position of Ecopetrol. Check out your portfolio center. Please also check ongoing floating volatility patterns of JAPAN TOBACCO and Ecopetrol.

Diversification Opportunities for JAPAN TOBACCO and Ecopetrol

0.48

Correlation Coefficient

JAPAN TOBACCO  Ecopetrol

Very weak diversification

The 3 months correlation between JAPAN and Ecopetrol is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding JAPAN TOBACCO UNSPADR12 and Ecopetrol SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ecopetrol SA and JAPAN TOBACCO 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 JAPAN TOBACCO UNSPADR12 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 has no effect on the direction of JAPAN TOBACCO i.e., JAPAN TOBACCO and Ecopetrol go up and down completely randomly.

Pair Corralation between JAPAN TOBACCO and Ecopetrol

Assuming the 90 days trading horizon JAPAN TOBACCO UNSPADR12 is expected to generate 0.8 times more return on investment than Ecopetrol. However, JAPAN TOBACCO UNSPADR12 is 1.25 times less risky than Ecopetrol. It trades about 0.02 of its potential returns per unit of risk. Ecopetrol SA is currently generating about -0.08 per unit of risk. If you would invest  1,260  in JAPAN TOBACCO UNSPADR12 on September 5, 2024 and sell it today you would earn a total of  20.00  from holding JAPAN TOBACCO UNSPADR12 or generate 1.59% return on investment over 90 days.

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

JAPAN TOBACCO UNSPADR12  vs.  Ecopetrol SA

JAPAN TOBACCO UNSPADR12

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in JAPAN TOBACCO UNSPADR12 are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, JAPAN TOBACCO is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

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 uncertain 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.

Pair Trading with JAPAN TOBACCO and Ecopetrol

The main advantage of trading using opposite JAPAN TOBACCO and Ecopetrol positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if JAPAN TOBACCO 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 JAPAN TOBACCO UNSPADR12 and Ecopetrol SA 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..