Correlation Analysis: Phillips 66’s Stock and Crude Oil’s Price
In this series, we’ve analyzed Phillips 66’s (PSX) stock movements, business segments, leverage, cash flows, and valuations. In this concluding part, we’ll test the correlation between PSX’s stock performance and crude oil prices.
A correlation coefficient shows the relationship between two variables. A correlation coefficient value of 0 to 1 shows a positive correlation, 0 states no correlation, and -1 to 0 shows an inverse correlation. We have considered the past three years of price history of PSX and Brent crude oil.
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Inversely correlated: Phillips 66’s stock and crude oil price
The correlation coefficient of Phillips 66 and Brent stands at -0.5x. The correlation values for Phillips 66 and Brent crude oil prices show that Phillips 66’s stock price moves inversely compared to the price of Brent. This means that around half of the movement in PSX’s stock price can be explained by changes in the Brent price.
Phillips 66’s peer correlation analysis
The situation remains the same for PSX peer Valero Energy (VLO). The correlation of VLO to Brent stands at -0.73x. Other downstream players such as Marathon Petroleum (MPC) and Tesoro (TSO) show correlations of -0.68x and -0.84x to Brent, respectively.
It can be observed that an integrated energy company’s correlation to oil price is lower than a downstream company’s. A case in point is ExxonMobil (XOM), an integrated energy giant that has a 0.22x correlation with Brent. This means that stock prices of integrated energy companies, due to their amalgamated upstream and downstream segments, show lower correlation to oil prices compared to standalone downstream companies.
If you are looking for exposure to refining and marketing sector stocks, you can consider the iShares Global Energy ETF (IXC). The ETF has ~7% exposure to refining sector stocks.