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Energy Stock Correlations with Energy Commodities Impact Returns

PART:
1 2 3 4 5
Part 4
Energy Stock Correlations with Energy Commodities Impact Returns PART 4 OF 5

Why Oil’s Important for Natural Gas–Weighted Stocks?

Natural gas–weighted stocks and crude oil

Except for EQT (EQT), all of the natural gas–weighted stocks in the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) that operate with a minimum 60% production mix in natural gas had higher correlations with crude oil (USL) (DBO) (OIIL) compared to natural gas (UNG) (GASX) in the week ending June 19, 2017.

Why Oil’s Important for Natural Gas–Weighted Stocks?

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Below are the natural gas–weighted stocks that had the highest correlations with US crude oil active futures in the trailing week.

  • Chesapeake Energy (CHK) – 95.2%
  • WPX Energy (WPX) – 79.6%
  • Gulfport Energy (GPOR) – 76.9%
  • Southwestern Energy (SWN) – 75.4%
  • Range Resources (RRC) – 74.4%

Natural gas–weighted stocks such as EQT and Rice Energy (RICE) had a correlation of 34.4% and -0.5% with US crude oil active futures on June 12–19, 2017.

Notably, Rice Energy had a negative correlation with crude oil and natural gas active futures in the trailing week. In Part 3, we already discussed the factors that impacted Rice Energy.

Crude oil’s fundamentals impact natural gas prices. So, crude oil could drive the sentiment in the entire energy sector. In the short term, crude oil could impact natural gas–weighted stocks. However, over a long-term period, natural gas could be vital for natural gas–weighted stocks. We discussed correlations of natural gas–heavy stocks with natural gas in the previous part.

In the next part, we’ll explore the impact of crude oil and natural gas prices on natural gas–weighted stocks’ returns.

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