Has the Correlation of BP Stock with WTI Strengthened?
Previously in this series, we noted that BP (BP) has filed a registration statement with the SEC (Securities and Exchange Commission) for its proposed midstream IPO. We also reviewed BP’s major upstream projects, segmental earnings outlook, analyst ratings, and the expectation of a dividend payment in 4Q17.
We also looked at BP’s market performance, starting with its stock performance, moving averages, and price forecast based on implied volatility. We also examined the company’s institutional ownership, short interest, valuations, and PEG ratio. In this part, we’ll examine the correlation between crude oil prices and BP’s stock price in the past one-month period.
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What is the correlation coefficient?
The correlation coefficient assesses the relationship between two variables. A value between 0 and 1 signifies a positive relationship. A value between -1 and 0 indicates a negative correlation. We have considered the price history of BP and WTI (West Texas Intermediate) in the past 12-month period and the past one-month period.
Correlation of BP stock with WTI
The correlation coefficient of BP versus WTI stood at 0.54 in the past one-year period. The positive correlation value between BP stock and the price of WTI oil shows that BP’s stock price changes in line with WTI prices.
Specifically, this means that changes in oil prices could explain ~54% of the changes in BP stock price in the past one-year period. However, this figure rose to 63% in the past one-month period, indicating a strengthening correlation between the two prices.
Correlation analysis of BP’s peers
BP’s peers Total (TOT) and Petrobras (PBR) are experiencing a similar situation, with a rise in correlation in the past one-month period. PBR’s correlation with WTI stood at 0.71 in the past one-month period compared to 0.50 in the past one-year period. Total’s correlation coefficient strengthened to 0.50 in the past one-month period.
However, Suncor Energy (SU), ENI (E), and ExxonMobil (XOM) saw declining correlations of 0.34, 0.10, and 0.06, respectively, in the past one-month period. SU, E, and XOM saw one-month correlation levels of 0.34, 0.34, and 0.47 with WTI in the past one-month period.
In the next part, we’ll look at BP’s financial position.