Correlation Between Ecopetrol and PT Bank
Can any of the company-specific risk be diversified away by investing in both Ecopetrol and PT Bank 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 PT Bank 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 PT Bank Central, you can compare the effects of market volatilities on Ecopetrol and PT Bank 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 PT Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ecopetrol and PT Bank.
Diversification Opportunities for Ecopetrol and PT Bank
Modest diversification
The 3 months correlation between Ecopetrol and PBCRF is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Ecopetrol SA ADR and PT Bank Central in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PT Bank Central 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 PT Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PT Bank Central has no effect on the direction of Ecopetrol i.e., Ecopetrol and PT Bank go up and down completely randomly.
Pair Corralation between Ecopetrol and PT Bank
Allowing for the 90-day total investment horizon Ecopetrol SA ADR is expected to under-perform the PT Bank. But the stock apears to be less risky and, when comparing its historical volatility, Ecopetrol SA ADR is 2.4 times less risky than PT Bank. The stock trades about -0.15 of its potential returns per unit of risk. The PT Bank Central is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 57.00 in PT Bank Central on August 29, 2024 and sell it today you would earn a total of 3.00 from holding PT Bank Central or generate 5.26% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ecopetrol SA ADR vs. PT Bank Central
Performance |
| Timeline |
| Ecopetrol SA ADR |
| PT Bank Central |
Ecopetrol and PT Bank Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ecopetrol and PT Bank
The main advantage of trading using opposite Ecopetrol and PT Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ecopetrol position performs unexpectedly, PT Bank 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 PT Bank will offset losses from the drop in PT Bank's long position.| Ecopetrol vs. Petroleo Brasileiro Petrobras | Ecopetrol vs. Equinor ASA ADR | Ecopetrol vs. Eni SpA ADR | Ecopetrol vs. Cenovus Energy |
| PT Bank vs. Commercial International Bank | PT Bank vs. Caixabank SA ADR | PT Bank vs. Bank Rakyat | PT Bank vs. Lloyds Banking 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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