Correlation Between SandRidge Energy and Ecopetrol

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Can any of the company-specific risk be diversified away by investing in both SandRidge Energy and Ecopetrol 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 SandRidge Energy and Ecopetrol into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SandRidge Energy and Ecopetrol SA ADR, you can compare the effects of market volatilities on SandRidge Energy and Ecopetrol 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 SandRidge Energy with a short position of Ecopetrol. Check out your portfolio center. Please also check ongoing floating volatility patterns of SandRidge Energy and Ecopetrol.

Diversification Opportunities for SandRidge Energy and Ecopetrol

0.68
  Correlation Coefficient

Poor diversification

The 3 months correlation between SandRidge and Ecopetrol is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding SandRidge Energy and Ecopetrol SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ecopetrol SA ADR and SandRidge Energy 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 SandRidge Energy are associated (or correlated) with Ecopetrol. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ecopetrol SA ADR has no effect on the direction of SandRidge Energy i.e., SandRidge Energy and Ecopetrol go up and down completely randomly.

Pair Corralation between SandRidge Energy and Ecopetrol

Allowing for the 90-day total investment horizon SandRidge Energy is expected to generate 2.34 times less return on investment than Ecopetrol. In addition to that, SandRidge Energy is 1.07 times more volatile than Ecopetrol SA ADR. It trades about 0.01 of its total potential returns per unit of risk. Ecopetrol SA ADR is currently generating about 0.03 per unit of volatility. If you would invest  759.00  in Ecopetrol SA ADR on November 1, 2024 and sell it today you would earn a total of  145.00  from holding Ecopetrol SA ADR or generate 19.1% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

SandRidge Energy  vs.  Ecopetrol SA ADR

 Performance 
       Timeline  
SandRidge Energy 

Risk-Adjusted Performance

7 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in SandRidge Energy are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, SandRidge Energy may actually be approaching a critical reversion point that can send shares even higher in March 2025.
Ecopetrol SA ADR 

Risk-Adjusted Performance

12 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Ecopetrol SA ADR are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental indicators, Ecopetrol exhibited solid returns over the last few months and may actually be approaching a breakup point.

SandRidge Energy and Ecopetrol Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with SandRidge Energy and Ecopetrol

The main advantage of trading using opposite SandRidge Energy and Ecopetrol positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SandRidge Energy position performs unexpectedly, Ecopetrol 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 Ecopetrol will offset losses from the drop in Ecopetrol's long position.
The idea behind SandRidge Energy and Ecopetrol SA ADR 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.
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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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.

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