Correlation Between Griffon and Ecopetrol

Can any of the company-specific risk be diversified away by investing in both Griffon 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 Griffon and Ecopetrol into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Griffon and Ecopetrol SA ADR, you can compare the effects of market volatilities on Griffon 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 Griffon with a short position of Ecopetrol. Check out your portfolio center. Please also check ongoing floating volatility patterns of Griffon and Ecopetrol.

Diversification Opportunities for Griffon and Ecopetrol

-0.22

Correlation Coefficient

Griffon  Ecopetrol

Very good diversification

The 3 months correlation between Griffon and Ecopetrol is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Griffon 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 Griffon 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 Griffon 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 Griffon i.e., Griffon and Ecopetrol go up and down completely randomly.

Pair Corralation between Griffon and Ecopetrol

Considering the 90-day investment horizon Griffon is expected to under-perform the Ecopetrol. In addition to that, Griffon is 1.15 times more volatile than Ecopetrol SA ADR. It trades about -0.01 of its total potential returns per unit of risk. Ecopetrol SA ADR is currently generating about 0.07 per unit of volatility. If you would invest  1,112  in Ecopetrol SA ADR on February 26, 2024 and sell it today you would earn a total of  80.00  from holding Ecopetrol SA ADR or generate 7.19% return on investment over 90 days.

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

Griffon  vs.  Ecopetrol SA ADR

Griffon

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Griffon has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Griffon is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Ecopetrol SA ADR

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Ecopetrol SA ADR are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting fundamental indicators, Ecopetrol may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Griffon and Ecopetrol

The main advantage of trading using opposite Griffon and Ecopetrol positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Griffon 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 Griffon 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.