Correlation Between Ecopetrol and AIB Group
Can any of the company-specific risk be diversified away by investing in both Ecopetrol and AIB Group 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 AIB Group into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ecopetrol SA and AIB Group plc, you can compare the effects of market volatilities on Ecopetrol and AIB Group 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 AIB Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ecopetrol and AIB Group.
Diversification Opportunities for Ecopetrol and AIB Group
Poor diversification
The 3 months correlation between Ecopetrol and AIB is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Ecopetrol SA and AIB Group plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AIB Group plc 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 AIB Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AIB Group plc has no effect on the direction of Ecopetrol i.e., Ecopetrol and AIB Group go up and down completely randomly.
Pair Corralation between Ecopetrol and AIB Group
Assuming the 90 days trading horizon Ecopetrol SA is expected to under-perform the AIB Group. In addition to that, Ecopetrol is 1.96 times more volatile than AIB Group plc. It trades about -0.11 of its total potential returns per unit of risk. AIB Group plc is currently generating about -0.1 per unit of volatility. If you would invest 541.00 in AIB Group plc on September 22, 2024 and sell it today you would lose (13.00) from holding AIB Group plc or give up 2.4% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ecopetrol SA vs. AIB Group plc
Performance |
| Timeline |
| Ecopetrol SA |
| AIB Group plc |
Ecopetrol and AIB Group Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ecopetrol and AIB Group
The main advantage of trading using opposite Ecopetrol and AIB Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ecopetrol position performs unexpectedly, AIB Group 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 AIB Group will offset losses from the drop in AIB Group's long position.The idea behind Ecopetrol SA and AIB Group plc 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.| AIB Group vs. Suntory Beverage Food | AIB Group vs. NorAm Drilling AS | AIB Group vs. DELTA AIR LINES | AIB Group vs. SCANSOURCE |
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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.
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