Correlation Between Ecopetrol and West Red
Can any of the company-specific risk be diversified away by investing in both Ecopetrol and West Red 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 West Red 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 West Red Lake, you can compare the effects of market volatilities on Ecopetrol and West Red 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 West Red. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ecopetrol and West Red.
Diversification Opportunities for Ecopetrol and West Red
Poor diversification
The 3 months correlation between Ecopetrol and West is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Ecopetrol SA ADR and West Red Lake in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on West Red Lake 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 West Red. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of West Red Lake has no effect on the direction of Ecopetrol i.e., Ecopetrol and West Red go up and down completely randomly.
Pair Corralation between Ecopetrol and West Red
Allowing for the 90-day total investment horizon Ecopetrol SA ADR is expected to under-perform the West Red. But the stock apears to be less risky and, when comparing its historical volatility, Ecopetrol SA ADR is 1.77 times less risky than West Red. The stock trades about -0.14 of its potential returns per unit of risk. The West Red Lake is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest 45.00 in West Red Lake on September 5, 2024 and sell it today you would lose (6.00) from holding West Red Lake or give up 13.33% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.2% |
| Values | Daily Returns |
Ecopetrol SA ADR vs. West Red Lake
Performance |
| Timeline |
| Ecopetrol SA ADR |
| West Red Lake |
Ecopetrol and West Red Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ecopetrol and West Red
The main advantage of trading using opposite Ecopetrol and West Red positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ecopetrol position performs unexpectedly, West Red 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 West Red will offset losses from the drop in West Red's long position.| Ecopetrol vs. Petroleo Brasileiro Petrobras | Ecopetrol vs. Equinor ASA ADR | Ecopetrol vs. Eni SpA ADR | Ecopetrol vs. Cenovus Energy |
| West Red vs. Turning Point Brands | West Red vs. Tyson Foods | West Red vs. Fidus Investment Corp | West Red vs. Ambev SA ADR |
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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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