Correlation Between Adams Resources and Ecopetrol

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

Diversification Opportunities for Adams Resources and Ecopetrol

-0.35
  Correlation Coefficient

Very good diversification

The 3 months correlation between Adams and Ecopetrol is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Adams Resources 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 Adams Resources 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 Adams Resources 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 Adams Resources i.e., Adams Resources and Ecopetrol go up and down completely randomly.

Pair Corralation between Adams Resources and Ecopetrol

Allowing for the 90-day total investment horizon Adams Resources Energy is expected to generate 1.87 times more return on investment than Ecopetrol. However, Adams Resources is 1.87 times more volatile than Ecopetrol SA ADR. It trades about 0.12 of its potential returns per unit of risk. Ecopetrol SA ADR is currently generating about 0.03 per unit of risk. If you would invest  2,657  in Adams Resources Energy on December 30, 2023 and sell it today you would earn a total of  243.00  from holding Adams Resources Energy or generate 9.15% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Adams Resources Energy  vs.  Ecopetrol SA ADR

 Performance 
       Timeline  
Adams Resources Energy 

Risk-Adjusted Performance

6 of 100

 
Low
 
High
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Adams Resources Energy are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating technical and fundamental indicators, Adams Resources exhibited solid returns over the last few months and may actually be approaching a breakup point.
Ecopetrol SA ADR 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
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 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.

Adams Resources and Ecopetrol Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Adams Resources and Ecopetrol

The main advantage of trading using opposite Adams Resources and Ecopetrol positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Adams Resources 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 Adams Resources 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.
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 Transaction History module to view history of all your transactions and understand their impact on performance.

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