Correlation Between Petroleo Brasileiro and Ecopetrol
Can any of the company-specific risk be diversified away by investing in both Petroleo Brasileiro 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 Petroleo Brasileiro and Ecopetrol into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Petroleo Brasileiro Petrobras and Ecopetrol SA ADR, you can compare the effects of market volatilities on Petroleo Brasileiro 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 Petroleo Brasileiro with a short position of Ecopetrol. Check out your portfolio center. Please also check ongoing floating volatility patterns of Petroleo Brasileiro and Ecopetrol.
Diversification Opportunities for Petroleo Brasileiro and Ecopetrol
0.34 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Petroleo and Ecopetrol is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Petroleo Brasileiro Petrobras 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 Petroleo Brasileiro 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 Petroleo Brasileiro Petrobras 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 Petroleo Brasileiro i.e., Petroleo Brasileiro and Ecopetrol go up and down completely randomly.
Pair Corralation between Petroleo Brasileiro and Ecopetrol
Considering the 90-day investment horizon Petroleo Brasileiro is expected to generate 1.71 times less return on investment than Ecopetrol. But when comparing it to its historical volatility, Petroleo Brasileiro Petrobras is 1.48 times less risky than Ecopetrol. It trades about 0.25 of its potential returns per unit of risk. Ecopetrol SA ADR is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest 1,019 in Ecopetrol SA ADR on January 19, 2024 and sell it today you would earn a total of 132.00 from holding Ecopetrol SA ADR or generate 12.95% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Petroleo Brasileiro Petrobras vs. Ecopetrol SA ADR
Performance |
| Timeline |
| Petroleo Brasileiro |
| Ecopetrol SA ADR |
Petroleo Brasileiro and Ecopetrol Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Petroleo Brasileiro and Ecopetrol
The main advantage of trading using opposite Petroleo Brasileiro and Ecopetrol positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Petroleo Brasileiro 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.| Petroleo Brasileiro vs. Ecopetrol SA ADR | Petroleo Brasileiro vs. Equinor ASA ADR | Petroleo Brasileiro vs. Eni SpA ADR | Petroleo Brasileiro vs. Cenovus Energy |
| Ecopetrol vs. Petroleo Brasileiro Petrobras | Ecopetrol vs. Equinor ASA ADR | Ecopetrol vs. Eni SpA ADR | Ecopetrol vs. Cenovus Energy |
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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.
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