Correlation Between Ecopetrol and Air China
Can any of the company-specific risk be diversified away by investing in both Ecopetrol and Air China 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 Air China into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ecopetrol SA and Air China Limited, you can compare the effects of market volatilities on Ecopetrol and Air China 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 Air China. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ecopetrol and Air China.
Diversification Opportunities for Ecopetrol and Air China
Excellent diversification
The 3 months correlation between Ecopetrol and Air is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Ecopetrol SA and Air China Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air China Limited 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 are associated (or correlated) with Air China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Air China Limited has no effect on the direction of Ecopetrol i.e., Ecopetrol and Air China go up and down completely randomly.
Pair Corralation between Ecopetrol and Air China
Assuming the 90 days trading horizon Ecopetrol is expected to generate 1.95 times less return on investment than Air China. But when comparing it to its historical volatility, Ecopetrol SA is 1.12 times less risky than Air China. It trades about 0.16 of its potential returns per unit of risk. Air China Limited is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest 51.00 in Air China Limited on August 28, 2024 and sell it today you would earn a total of 8.00 from holding Air China Limited or generate 15.69% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ecopetrol SA vs. Air China Limited
Performance |
| Timeline |
| Ecopetrol SA |
| Air China Limited |
Ecopetrol and Air China Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ecopetrol and Air China
The main advantage of trading using opposite Ecopetrol and Air China positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ecopetrol position performs unexpectedly, Air China 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 Air China will offset losses from the drop in Air China's long position.| Ecopetrol vs. Superior Plus Corp | Ecopetrol vs. Origin Agritech | Ecopetrol vs. Identiv | Ecopetrol vs. INTUITIVE SURGICAL |
| Air China vs. British American Tobacco | Air China vs. SOFTBANK P ADR | Air China vs. COMINTL BANK ADR1 | Air China vs. MSAD INSURANCE |
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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.
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