Correlation Between Ecopetrol and Arch Therapeutics
Can any of the company-specific risk be diversified away by investing in both Ecopetrol and Arch Therapeutics 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 Arch Therapeutics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ecopetrol SA ADR and Arch Therapeutics, you can compare the effects of market volatilities on Ecopetrol and Arch Therapeutics 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 Arch Therapeutics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ecopetrol and Arch Therapeutics.
Diversification Opportunities for Ecopetrol and Arch Therapeutics
0.72 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Ecopetrol and Arch is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Ecopetrol SA ADR and Arch Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arch Therapeutics 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 ADR are associated (or correlated) with Arch Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arch Therapeutics has no effect on the direction of Ecopetrol i.e., Ecopetrol and Arch Therapeutics go up and down completely randomly.
Pair Corralation between Ecopetrol and Arch Therapeutics
Allowing for the 90-day total investment horizon Ecopetrol SA ADR is expected to generate 0.19 times more return on investment than Arch Therapeutics. However, Ecopetrol SA ADR is 5.36 times less risky than Arch Therapeutics. It trades about 0.14 of its potential returns per unit of risk. Arch Therapeutics is currently generating about -0.18 per unit of risk. If you would invest 761.00 in Ecopetrol SA ADR on September 3, 2024 and sell it today you would earn a total of 42.00 from holding Ecopetrol SA ADR or generate 5.52% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ecopetrol SA ADR vs. Arch Therapeutics
Performance |
| Timeline |
| Ecopetrol SA ADR |
| Arch Therapeutics |
Ecopetrol and Arch Therapeutics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ecopetrol and Arch Therapeutics
The main advantage of trading using opposite Ecopetrol and Arch Therapeutics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ecopetrol position performs unexpectedly, Arch Therapeutics 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 Arch Therapeutics will offset losses from the drop in Arch Therapeutics' long position.| Ecopetrol vs. Petroleo Brasileiro Petrobras | Ecopetrol vs. Equinor ASA ADR | Ecopetrol vs. Eni SpA ADR | Ecopetrol vs. Cenovus Energy |
| Arch Therapeutics vs. biOasis Technologies | Arch Therapeutics vs. Antibe Therapeutics | Arch Therapeutics vs. Awakn Life Sciences | Arch Therapeutics vs. Cellectis SA |
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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.
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