Correlation Between Ecopetrol and Caredx

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Can any of the company-specific risk be diversified away by investing in both Ecopetrol and Caredx 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 Caredx 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 Caredx Inc, you can compare the effects of market volatilities on Ecopetrol and Caredx 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 Caredx. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ecopetrol and Caredx.

Diversification Opportunities for Ecopetrol and Caredx

0.84
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Ecopetrol and Caredx is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Ecopetrol SA ADR and Caredx Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caredx Inc 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 Caredx. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Caredx Inc has no effect on the direction of Ecopetrol i.e., Ecopetrol and Caredx go up and down completely randomly.

Pair Corralation between Ecopetrol and Caredx

Allowing for the 90-day total investment horizon Ecopetrol is expected to generate 18.02 times less return on investment than Caredx. But when comparing it to its historical volatility, Ecopetrol SA ADR is 2.94 times less risky than Caredx. It trades about 0.01 of its potential returns per unit of risk. Caredx Inc is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  806.00  in Caredx Inc on August 31, 2024 and sell it today you would earn a total of  1,648  from holding Caredx Inc or generate 204.47% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Ecopetrol SA ADR  vs.  Caredx Inc

 Performance 
       Timeline  
Ecopetrol SA ADR 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
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 weak performance in the last few months, the Stock's fundamental indicators remain rather sound which may send shares a bit higher in December 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.
Caredx Inc 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Caredx Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Ecopetrol and Caredx Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Ecopetrol and Caredx

The main advantage of trading using opposite Ecopetrol and Caredx positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ecopetrol position performs unexpectedly, Caredx 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 Caredx will offset losses from the drop in Caredx's long position.
The idea behind Ecopetrol SA ADR and Caredx Inc 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.

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