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How Fall in Oil Could Limit Your Energy Portfolio’s Gains

PART:
1 2 3 4 5
Part 3
How Fall in Oil Could Limit Your Energy Portfolio’s Gains PART 3 OF 5

Why Oil Is behind Fall in Energy ETFs

Energy subsector ETFs

Between October 5 and October 12, 2017, the Energy Select Sector SPDR ETF (XLE) had the highest correlation of 86.9% with US crude oil active futures. However, it fell the least over this time period among our list of energy subsector ETFs. In the previous part, we discussed XLE’s price performance.

Why Oil Is behind Fall in Energy ETFs

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The correlations of the other three energy subsector ETFs with crude oil in the past five trading sessions are as follows:

  • The SPDR S&P Oil & Gas Exploration & Production ETF (XOP): 79.3%
  • The VanEck Vectors Oil Services ETF (OIH): 67.8%
  • The Alerian MLP ETF (AMLP): 47.5%

OIH fell 3.4%, the most among our list of energy subsector ETFs in the seven calendar days to October 12, 2017. AMLP and XOP fell 1.1% and 2.2% during this period.

The 0.4% fall in US crude oil November futures could be the reason behind the fall in these ETFs, according to the correlations.

Natural gas

All these four energy subsector ETFs had either negative or mild positive correlations with natural gas futures between October 5 and October 12, 2017. The correlations of XOP, XLE, AMLP, and OIH with natural gas prices were 23.5%, 17.6%, -30.5%, and -30.1%, respectively, over this time period. So, based on the correlations, in the trailing week, changes in the natural gas prices were a small concern for these ETFs.

The S&P 500 Index

The correlations of the four energy subsector ETFs with the S&P 500 Index in the trailing week are:

  • AMLP at 86.1%
  • XLE at 46.6%
  • XOP at 40.1%
  • OIH at 34.2%

AMLP had the highest correlation with the S&P 500 Index and the least correlation with oil prices during this period among our list of energy subsector ETFs. The S&P 500 Index was flat during this period.

But, in the past five trading sessions, oil prices were broadly more important for these energy ETFs than the broad equity markets.

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