Correlation Between Ecopetrol and CVS Health

Can any of the company-specific risk be diversified away by investing in both Ecopetrol and CVS Health 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 CVS Health 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 CVS Health Corp, you can compare the effects of market volatilities on Ecopetrol and CVS Health 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 CVS Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ecopetrol and CVS Health.

Diversification Opportunities for Ecopetrol and CVS Health

-0.47

Correlation Coefficient

Ecopetrol  CVS Health

Very good diversification

The 3 months correlation between Ecopetrol and CVS is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Ecopetrol SA ADR and CVS Health Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVS Health Corp 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 CVS Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CVS Health Corp has no effect on the direction of Ecopetrol i.e., Ecopetrol and CVS Health go up and down completely randomly.

Pair Corralation between Ecopetrol and CVS Health

Allowing for the 90-day total investment horizon Ecopetrol SA ADR is expected to generate 0.41 times more return on investment than CVS Health. However, Ecopetrol SA ADR is 2.45 times less risky than CVS Health. It trades about -0.1 of its potential returns per unit of risk. CVS Health Corp is currently generating about -0.32 per unit of risk. If you would invest  1,204  in Ecopetrol SA ADR on February 7, 2024 and sell it today you would lose (43.00) from holding Ecopetrol SA ADR or give up 3.57% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Ecopetrol SA ADR  vs.  CVS Health Corp

Ecopetrol SA ADR

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ecopetrol SA ADR are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Ecopetrol is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

CVS Health Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CVS Health Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in June 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Ecopetrol and CVS Health

The main advantage of trading using opposite Ecopetrol and CVS Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ecopetrol position performs unexpectedly, CVS Health 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 CVS Health will offset losses from the drop in CVS Health's long position.

The idea behind Ecopetrol SA ADR and CVS Health Corp 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.