Correlation Between DAX Index and Ecopetrol

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

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

Diversification Opportunities for DAX Index and Ecopetrol

0.1

Correlation Coefficient

DAX Index  Ecopetrol

Average diversification

The 3 months correlation between DAX and Ecopetrol is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding DAX Index and Ecopetrol SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ecopetrol SA and DAX Index 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 DAX Index 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 has no effect on the direction of DAX Index i.e., DAX Index and Ecopetrol go up and down completely randomly.

Pair Corralation between DAX Index and Ecopetrol

Assuming the 90 days trading horizon DAX Index is expected to generate 0.38 times more return on investment than Ecopetrol. However, DAX Index is 2.62 times less risky than Ecopetrol. It trades about 0.23 of its potential returns per unit of risk. Ecopetrol SA is currently generating about 0.02 per unit of risk. If you would invest  2,129,353  in DAX Index on April 22, 2025 and sell it today you would earn a total of  301,427  from holding DAX Index or generate 14.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

DAX Index  vs.  Ecopetrol SA

Pair Trading with DAX Index and Ecopetrol

The main advantage of trading using opposite DAX Index and Ecopetrol positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DAX Index 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 DAX Index and Ecopetrol SA 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 Valuation module to check real value of public entities based on technical and fundamental data.