Correlation Between Ecopetrol and Leonardo SpA
Can any of the company-specific risk be diversified away by investing in both Ecopetrol and Leonardo SpA 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 Leonardo SpA 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 Leonardo SpA ADR, you can compare the effects of market volatilities on Ecopetrol and Leonardo SpA 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 Leonardo SpA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ecopetrol and Leonardo SpA.
Diversification Opportunities for Ecopetrol and Leonardo SpA
-0.4 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Ecopetrol and Leonardo is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Ecopetrol SA ADR and Leonardo SpA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Leonardo SpA ADR 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 Leonardo SpA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Leonardo SpA ADR has no effect on the direction of Ecopetrol i.e., Ecopetrol and Leonardo SpA go up and down completely randomly.
Pair Corralation between Ecopetrol and Leonardo SpA
Allowing for the 90-day total investment horizon Ecopetrol is expected to generate 9.16 times less return on investment than Leonardo SpA. In addition to that, Ecopetrol is 1.0 times more volatile than Leonardo SpA ADR. It trades about 0.02 of its total potential returns per unit of risk. Leonardo SpA ADR is currently generating about 0.22 per unit of volatility. If you would invest 1,194 in Leonardo SpA ADR on August 28, 2024 and sell it today you would earn a total of 114.00 from holding Leonardo SpA ADR or generate 9.55% 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. Leonardo SpA ADR
Performance |
| Timeline |
| Ecopetrol SA ADR |
| Leonardo SpA ADR |
Ecopetrol and Leonardo SpA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ecopetrol and Leonardo SpA
The main advantage of trading using opposite Ecopetrol and Leonardo SpA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ecopetrol position performs unexpectedly, Leonardo SpA 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 Leonardo SpA will offset losses from the drop in Leonardo SpA's long position.The idea behind Ecopetrol SA ADR and Leonardo SpA ADR 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.| Leonardo SpA vs. Moog Inc | Leonardo SpA vs. BAE Systems PLC | Leonardo SpA vs. Park Electrochemical | Leonardo SpA vs. Triumph Group |
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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.
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