Correlation Between Ecopetrol and Geospace Technologies

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

Diversification Opportunities for Ecopetrol and Geospace Technologies

-0.78

Correlation Coefficient

Ecopetrol  Geospace Technologies

Pay attention - limited upside

The 3 months correlation between Ecopetrol and Geospace is -0.78. Overlapping area represents the amount of risk that can be diversified away by holding Ecopetrol SA ADR and Geospace Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Geospace Technologies 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 Geospace Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Geospace Technologies has no effect on the direction of Ecopetrol i.e., Ecopetrol and Geospace Technologies go up and down completely randomly.

Pair Corralation between Ecopetrol and Geospace Technologies

Allowing for the 90-day total investment horizon Ecopetrol SA ADR is expected to generate 0.35 times more return on investment than Geospace Technologies. However, Ecopetrol SA ADR is 2.84 times less risky than Geospace Technologies. It trades about 0.12 of its potential returns per unit of risk. Geospace Technologies is currently generating about -0.04 per unit of risk. If you would invest  761.00  in Ecopetrol SA ADR on September 5, 2024 and sell it today you would earn a total of  36.00  from holding Ecopetrol SA ADR or generate 4.73% return on investment over 90 days.

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

Ecopetrol SA ADR  vs.  Geospace Technologies

Ecopetrol SA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ecopetrol SA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Geospace Technologies

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Geospace Technologies are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Geospace Technologies unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ecopetrol and Geospace Technologies

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

The idea behind Ecopetrol SA ADR and Geospace Technologies 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.