Correlation Between Ecopetrol and Foreign Trade

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

Diversification Opportunities for Ecopetrol and Foreign Trade

0.65

Correlation Coefficient

Ecopetrol  Foreign Trade

Poor diversification

The 3 months correlation between Ecopetrol and Foreign is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Ecopetrol SA ADR and Foreign Trade Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Foreign Trade Bank 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 Foreign Trade. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Foreign Trade Bank has no effect on the direction of Ecopetrol i.e., Ecopetrol and Foreign Trade go up and down completely randomly.

Pair Corralation between Ecopetrol and Foreign Trade

Allowing for the 90-day total investment horizon Ecopetrol SA ADR is expected to generate 1.52 times more return on investment than Foreign Trade. However, Ecopetrol is 1.52 times more volatile than Foreign Trade Bank. It trades about 0.05 of its potential returns per unit of risk. Foreign Trade Bank is currently generating about 0.02 per unit of risk. If you would invest  788.00  in Ecopetrol SA ADR on May 3, 2025 and sell it today you would earn a total of  41.00  from holding Ecopetrol SA ADR or generate 5.2% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Ecopetrol SA ADR  vs.  Foreign Trade Bank

Ecopetrol SA ADR

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Ecopetrol SA ADR are ranked lower than 4 (%) 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 latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Foreign Trade Bank

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Foreign Trade Bank are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong essential indicators, Foreign Trade is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Ecopetrol and Foreign Trade

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

The idea behind Ecopetrol SA ADR and Foreign Trade Bank 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.

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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.