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XOM, CVX, RDS.A, BP: Where They Stand after Their 3Q17 Earnings

PART:
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Part 10
XOM, CVX, RDS.A, BP: Where They Stand after Their 3Q17 Earnings PART 10 OF 10

The Correlation of Integrated Energy Stocks with WTI

Correlation of integrated energy stocks with WTI

In this series, we have evaluated integrated energy firms’ stock performance, moving averages, price forecast based on its implied volatility, and analyst ratings. We’ve also examined the dividend expectations for 1Q18, valuations, and PEG ratios. We have also reviewed the short interest movements and changes in institutional holdings.

In this final part of the series, we will see whether there is a rise in the correlation between integrated stock prices and crude oil prices in the past three months compared to the past year.

The Correlation of Integrated Energy Stocks with WTI

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The correlation coefficient assesses the relationship between two variables. A value between 0 and 1 means a positive correlation, a value of 1 indicates perfect correlation, and a value between -1 and 0 means a negative correlation.

We have considered the past three months’ and past one year’s price history of integrated energy stocks and WTI (West Texas Intermediate).

Correlation of integrated energy stocks with WTI

The correlation coefficients of integrated energy stocks ExxonMobil (XOM), Chevron (CVX), Royal Dutch Shell (RDS.A), and BP (BP) have shown diverse changes in the past three months compared to the past one-year period.

Although XOM has seen a rise in its correlation to oil prices, CVX has seen a fall in its correlation to oil prices in the past three months compared to the past one-year period. Shell and BP’s correlations to oil prices have remained almost the same in both periods.

CVX has seen a fall in correlation to 0.30 in the past three months, compared to 0.48 in the past one-year period. This means that changes in oil prices could explain ~48.0% of the changes in CVX stock in the past one-year period. However, this metric fell to 30.0% in the past three months, indicating a weakening correlation.

Integrated energy companies are affected by both segments—upstream and downstream. In the lower oil price scenario, downstream supports a company’s overall earnings. In a higher oil price scenario, upstream contributes a major piece of its overall earnings.

Because oil is a crucial factor influencing integrated energy companies’ earnings, their stock prices exhibit a higher correlation to oil prices.

The correlations of XOM, RDS.A, and BP stood at 0.46, 0.56, and 0.51, respectively, in the past three months. XOM, RDS.A, and BP’s respective correlations with WTI stood at 0.44, 0.56, and 0.52 in the past one-year period.

For more information on oil prices, please read Why Crude Oil Futures Hit a 28-Month High?

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