Correlation Between Ecopetrol and Shell PLC
Can any of the company-specific risk be diversified away by investing in both Ecopetrol and Shell PLC 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 Shell PLC 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 Shell PLC ADR, you can compare the effects of market volatilities on Ecopetrol and Shell PLC 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 Shell PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ecopetrol and Shell PLC.
Diversification Opportunities for Ecopetrol and Shell PLC
Poor diversification
The 3 months correlation between Ecopetrol and Shell is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Ecopetrol SA ADR and Shell PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shell PLC 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 Shell PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shell PLC ADR has no effect on the direction of Ecopetrol i.e., Ecopetrol and Shell PLC go up and down completely randomly.
Pair Corralation between Ecopetrol and Shell PLC
Allowing for the 90-day total investment horizon Ecopetrol SA ADR is expected to generate 1.69 times more return on investment than Shell PLC. However, Ecopetrol is 1.69 times more volatile than Shell PLC ADR. It trades about 0.02 of its potential returns per unit of risk. Shell PLC ADR is currently generating about 0.0 per unit of risk. If you would invest 814.00 in Ecopetrol SA ADR on August 23, 2024 and sell it today you would earn a total of 5.00 from holding Ecopetrol SA ADR or generate 0.61% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ecopetrol SA ADR vs. Shell PLC ADR
Performance |
| Timeline |
| Ecopetrol SA ADR |
| Shell PLC ADR |
Ecopetrol and Shell PLC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ecopetrol and Shell PLC
The main advantage of trading using opposite Ecopetrol and Shell PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ecopetrol position performs unexpectedly, Shell PLC 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 Shell PLC will offset losses from the drop in Shell PLC's long position.| Ecopetrol vs. Petroleo Brasileiro Petrobras | Ecopetrol vs. Equinor ASA ADR | Ecopetrol vs. Eni SpA ADR | Ecopetrol vs. Cenovus Energy |
| Shell PLC vs. Exxon Mobil Corp | Shell PLC vs. Chevron Corp | Shell PLC vs. TotalEnergies SE ADR | Shell PLC vs. Petroleo Brasileiro Petrobras |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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