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Why Oil's Important for Investment Portfolios

PART:
1 2 3 4 5
Part 3
Why Oil's Important for Investment Portfolios PART 3 OF 5

Oil Could Impact Your Energy ETF Investments

Energy ETFs

On July 27–August 3, 2017, the VanEck Vectors Oil Services ETF (OIH) fell 2.4%—the second-highest among the major energy sub-sector ETFs. It had the highest correlation of 66.6% with US crude oil active futures. In the trailing week, US crude oil active futures were almost flat.

Oil Could Impact Your Energy ETF Investments

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The performances of these energy ETFs in the trailing five trading sessions are as follows:

  • Alerian MLP ETF (AMLP) at -0.8%.
  • Energy Select Sector SPDR ETF (XLE) at -1.7%
  • SPDR S&P Oil & Gas Exploration & Production ETF (XOP) at -7.2%.

AMLP, XLE, and XOP had correlations of 51.5%, 35.6%, and 33.9% with US crude oil active futures in the last five trading sessions.

Natural gas

Based on the correlation, natural gas’ impact could be limited on these energy ETFs. The correlation of these four energy ETFs with natural gas are as follows:

  • Alerian MLP ETF (AMLP) at -24.1%
  • Energy Select Sector SPDR ETF (XLE) at -40.3%
  • SPDR S&P Oil & Gas Exploration & Production ETF (XOP) at -17.8%.
  • VanEck Vectors Oil Services ETF (OIH) at 1.8%

Broader markets

In the last five trading sessions, OIH had the only negative correlation of -43.7% with the S&P 500 Index (SPY). Other energy ETFs correlations with the broad equity index were as follows:

  • Alerian MLP ETF (AMLP) at 54%
  • Energy Select Sector SPDR ETF (XLE) at 52.5%
  • SPDR S&P Oil & Gas Exploration & Production ETF (XOP) at 42.5%.

The S&P 500 Index fell 0.1% on July 27–August 3, 2017. However, bearishness for crude oil due to OPEC’s rising oil production impacted these ETFs’ performances negatively.

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