Correlation Between Ecopetrol and China Construction
Can any of the company-specific risk be diversified away by investing in both Ecopetrol and China Construction 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 China Construction 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 China Construction Bank, you can compare the effects of market volatilities on Ecopetrol and China Construction 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 China Construction. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ecopetrol and China Construction.
Diversification Opportunities for Ecopetrol and China Construction
-0.59 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Ecopetrol and China is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Ecopetrol SA ADR and China Construction Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Construction Bank 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 China Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Construction Bank has no effect on the direction of Ecopetrol i.e., Ecopetrol and China Construction go up and down completely randomly.
Pair Corralation between Ecopetrol and China Construction
Allowing for the 90-day total investment horizon Ecopetrol SA ADR is expected to under-perform the China Construction. But the stock apears to be less risky and, when comparing its historical volatility, Ecopetrol SA ADR is 1.03 times less risky than China Construction. The stock trades about -0.14 of its potential returns per unit of risk. The China Construction Bank is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 1,329 in China Construction Bank on September 2, 2024 and sell it today you would earn a total of 190.00 from holding China Construction Bank or generate 14.3% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ecopetrol SA ADR vs. China Construction Bank
Performance |
| Timeline |
| Ecopetrol SA ADR |
| China Construction Bank |
Ecopetrol and China Construction Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ecopetrol and China Construction
The main advantage of trading using opposite Ecopetrol and China Construction positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ecopetrol position performs unexpectedly, China Construction 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 China Construction will offset losses from the drop in China Construction's long position.The idea behind Ecopetrol SA ADR and China Construction Bank 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.| China Construction vs. Bank of China | China Construction vs. Industrial and Commercial | China Construction vs. China Construction Bank | China Construction vs. Bank of America |
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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..
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