Correlation Between Ecopetrol and Tianjin Capital

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

Diversification Opportunities for Ecopetrol and Tianjin Capital

-0.75

Correlation Coefficient

Ecopetrol  Tianjin Capital

Pay attention - limited upside

The 3 months correlation between Ecopetrol and Tianjin is -0.75. Overlapping area represents the amount of risk that can be diversified away by holding Ecopetrol SA ADR and Tianjin Capital Environmental in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tianjin Capital Envi 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 Tianjin Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tianjin Capital Envi has no effect on the direction of Ecopetrol i.e., Ecopetrol and Tianjin Capital go up and down completely randomly.

Pair Corralation between Ecopetrol and Tianjin Capital

Allowing for the 90-day total investment horizon Ecopetrol is expected to generate 23.15 times less return on investment than Tianjin Capital. But when comparing it to its historical volatility, Ecopetrol SA ADR is 3.56 times less risky than Tianjin Capital. It trades about 0.01 of its potential returns per unit of risk. Tianjin Capital Environmental is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  17.00  in Tianjin Capital Environmental on September 12, 2024 and sell it today you would earn a total of  21.00  from holding Tianjin Capital Environmental or generate 123.53% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	99.4%
Values	Daily Returns

Ecopetrol SA ADR  vs.  Tianjin Capital Environmental

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 latest weak performance, the Stock's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Tianjin Capital Envi

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Tianjin Capital Environmental are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak forward indicators, Tianjin Capital may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Ecopetrol and Tianjin Capital

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

The idea behind Ecopetrol SA ADR and Tianjin Capital Environmental 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.