Correlation Between Ecopetrol and Henderson Land

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

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

Diversification Opportunities for Ecopetrol and Henderson Land

0.65

Correlation Coefficient

Ecopetrol  Henderson Land

Poor diversification

The 3 months correlation between Ecopetrol and Henderson is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Ecopetrol SA and Henderson Land Development in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Henderson Land Devel 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 Henderson Land. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Henderson Land Devel has no effect on the direction of Ecopetrol i.e., Ecopetrol and Henderson Land go up and down completely randomly.

Pair Corralation between Ecopetrol and Henderson Land

Assuming the 90 days trading horizon Ecopetrol is expected to generate 7.72 times less return on investment than Henderson Land. But when comparing it to its historical volatility, Ecopetrol SA is 1.2 times less risky than Henderson Land. It trades about 0.03 of its potential returns per unit of risk. Henderson Land Development is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  224.00  in Henderson Land Development on April 20, 2025 and sell it today you would earn a total of  62.00  from holding Henderson Land Development or generate 27.68% return on investment over 90 days.

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

Ecopetrol SA  vs.  Henderson Land Development

Ecopetrol SA

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ecopetrol SA are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Ecopetrol is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Henderson Land Devel

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Henderson Land Development are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Henderson Land reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ecopetrol and Henderson Land

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

The idea behind Ecopetrol SA and Henderson Land Development 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.