How Large Oilfield Services Correlate with Crude Oil
Schlumberger’s correlation with crude oil
We’ll now analyze the correlation between the stock prices of Schlumberger (SLB), Halliburton (HAL), Baker Hughes, a GE Company (BHGE), and National Oilwell Varco (NOV) with the West Texas Intermediate (or WTI) crude oil price.
The correlation coefficient between Schlumberger’s stock price and crude oil prices from November 6, 2016, to November 6, 2017, was 0.56. This indicates a strong positive relationship between Schlumberger’s stock and crude oil prices. The correlation coefficient between Schlumberger and the Dow Jones Industrial Average (DJIA-INDEX) has been 0.42 since November 6, 2016.
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Correlation between HAL, BHGE, and NOV and crude oil
As noted in the graph above, the VanEck Vectors Oil Services ETF’s (OIH) correlation with crude oil since November 6, 2016, was 0.68. Halliburton’s correlation coefficient since November 6, 2016, was 0.61, while Baker Hughes’s correlation coefficient since November 6, 2016, was 0.49. National Oilwell Varco’s correlation coefficient during the same period was ~0.55.
As the graph above shows, except for NOV, all four oilfield services companies’ correlation with crude oil prices have fallen in the trailing year to November 2017 compared to the trailing years to November 2016.
What does crude oil’s correlation mean for OFS stocks?
If the crude oil price rises from here, it should bode well for those stocks that have a high or rising correlation with crude oil price. The current crude oil price dynamics show more upside factors that can outweigh any immediate downtrend. Read more on this in Market Realist’s Last Week in the Energy Sector: Recap as of November 3.
A high correlation means the stock was more impacted by crude oil’s movement. A negative correlation implies that the stock was likely impacted more by crude oil movement, but in the reverse direction.
In the next article, we’ll look at short interest for these OFS midcap stocks.