Correlation Between Chevron and Ecopetrol
Can any of the company-specific risk be diversified away by investing in both Chevron 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 Chevron and Ecopetrol into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Chevron and Ecopetrol SA, you can compare the effects of market volatilities on Chevron 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 Chevron with a short position of Ecopetrol. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chevron and Ecopetrol.
Diversification Opportunities for Chevron and Ecopetrol
Very good diversification
The 3 months correlation between Chevron and Ecopetrol is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Chevron and Ecopetrol SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ecopetrol SA and Chevron 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 Chevron 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 Chevron i.e., Chevron and Ecopetrol go up and down completely randomly.
Pair Corralation between Chevron and Ecopetrol
Assuming the 90 days horizon Chevron is expected to under-perform the Ecopetrol. But the stock apears to be less risky and, when comparing its historical volatility, Chevron is 1.57 times less risky than Ecopetrol. The stock trades about -0.39 of its potential returns per unit of risk. The Ecopetrol SA is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest 768.00 in Ecopetrol SA on September 22, 2024 and sell it today you would lose (38.00) from holding Ecopetrol SA or give up 4.95% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Chevron vs. Ecopetrol SA
Performance |
| Timeline |
| Chevron |
| Ecopetrol SA |
Chevron and Ecopetrol Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Chevron and Ecopetrol
The main advantage of trading using opposite Chevron and Ecopetrol positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Chevron 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 Chevron 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.Check out your portfolio center.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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.
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