Correlation Between Ecopetrol and Skanska AB
Can any of the company-specific risk be diversified away by investing in both Ecopetrol and Skanska AB 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 Skanska AB 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 Skanska AB, you can compare the effects of market volatilities on Ecopetrol and Skanska AB 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 Skanska AB. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ecopetrol and Skanska AB.
Diversification Opportunities for Ecopetrol and Skanska AB
-0.37 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Ecopetrol and Skanska is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Ecopetrol SA ADR and Skanska AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Skanska AB 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 Skanska AB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Skanska AB has no effect on the direction of Ecopetrol i.e., Ecopetrol and Skanska AB go up and down completely randomly.
Pair Corralation between Ecopetrol and Skanska AB
Allowing for the 90-day total investment horizon Ecopetrol is expected to generate 6.43 times less return on investment than Skanska AB. But when comparing it to its historical volatility, Ecopetrol SA ADR is 1.65 times less risky than Skanska AB. It trades about 0.02 of its potential returns per unit of risk. Skanska AB is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 1,315 in Skanska AB on September 2, 2024 and sell it today you would earn a total of 695.00 from holding Skanska AB or generate 52.85% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 74.73% |
| Values | Daily Returns |
Ecopetrol SA ADR vs. Skanska AB
Performance |
| Timeline |
| Ecopetrol SA ADR |
| Skanska AB |
Ecopetrol and Skanska AB Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ecopetrol and Skanska AB
The main advantage of trading using opposite Ecopetrol and Skanska AB positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ecopetrol position performs unexpectedly, Skanska AB 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 Skanska AB will offset losses from the drop in Skanska AB's long position.The idea behind Ecopetrol SA ADR and Skanska AB 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.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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.
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