Correlation Between Ecopetrol and Sumitomo Rubber

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

By analyzing existing cross correlation between Ecopetrol SA and Sumitomo Rubber Industries, you can compare the effects of market volatilities on Ecopetrol and Sumitomo Rubber 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 Sumitomo Rubber. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ecopetrol and Sumitomo Rubber.

Diversification Opportunities for Ecopetrol and Sumitomo Rubber

-0.66

Correlation Coefficient

Ecopetrol  Sumitomo Rubber

Excellent diversification

The 3 months correlation between Ecopetrol and Sumitomo is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Ecopetrol SA and Sumitomo Rubber Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sumitomo Rubber Indu 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 are associated (or correlated) with Sumitomo Rubber. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sumitomo Rubber Indu has no effect on the direction of Ecopetrol i.e., Ecopetrol and Sumitomo Rubber go up and down completely randomly.

Pair Corralation between Ecopetrol and Sumitomo Rubber

Assuming the 90 days trading horizon Ecopetrol SA is expected to generate 1.35 times more return on investment than Sumitomo Rubber. However, Ecopetrol is 1.35 times more volatile than Sumitomo Rubber Industries. It trades about 0.01 of its potential returns per unit of risk. Sumitomo Rubber Industries is currently generating about -0.09 per unit of risk. If you would invest  756.00  in Ecopetrol SA on April 24, 2025 and sell it today you would lose (4.00) from holding Ecopetrol SA or give up 0.53% of portfolio value over 90 days.

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

Ecopetrol SA  vs.  Sumitomo Rubber Industries

Ecopetrol SA

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ecopetrol SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Ecopetrol is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Sumitomo Rubber Indu

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sumitomo Rubber Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Ecopetrol and Sumitomo Rubber

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

The idea behind Ecopetrol SA and Sumitomo Rubber Industries 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.