Correlation Between Ecopetrol and Covalon Technologies

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

Diversification Opportunities for Ecopetrol and Covalon Technologies

-0.39
  Correlation Coefficient

Very good diversification

The 3 months correlation between Ecopetrol and Covalon is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Ecopetrol SA ADR and Covalon Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Covalon Technologies 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 Covalon Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Covalon Technologies has no effect on the direction of Ecopetrol i.e., Ecopetrol and Covalon Technologies go up and down completely randomly.

Pair Corralation between Ecopetrol and Covalon Technologies

Allowing for the 90-day total investment horizon Ecopetrol SA ADR is expected to under-perform the Covalon Technologies. But the stock apears to be less risky and, when comparing its historical volatility, Ecopetrol SA ADR is 1.71 times less risky than Covalon Technologies. The stock trades about -0.01 of its potential returns per unit of risk. The Covalon Technologies is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  240.00  in Covalon Technologies on August 29, 2024 and sell it today you would earn a total of  13.00  from holding Covalon Technologies or generate 5.42% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Ecopetrol SA ADR  vs.  Covalon Technologies

 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.
Covalon Technologies 

Risk-Adjusted Performance

4 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Covalon Technologies are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile essential indicators, Covalon Technologies may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Ecopetrol and Covalon Technologies Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Ecopetrol and Covalon Technologies

The main advantage of trading using opposite Ecopetrol and Covalon Technologies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ecopetrol position performs unexpectedly, Covalon Technologies 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 Covalon Technologies will offset losses from the drop in Covalon Technologies' long position.
The idea behind Ecopetrol SA ADR and Covalon Technologies 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.

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