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COG Highly Correlates to Natural Gas Prices, CHK Not so Much

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Nov. 20 2020, Updated 5:20 p.m. ET

Upstream companies’ correlations with natural gas

In the previous part, we analyzed the correlations between select upstream companies and WTI crude oil prices. In this part, we’ll analyze upstream companies’ correlations with natural gas prices.

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COG had the highest correlation

Cabot Oil & Gas (COG) had the highest correlation with natural gas prices in the past one-year, six-month, three-month, and one-month periods. This means that recovery in natural gas prices could mean a higher stock price for COG. On the other hand, it means that COG’s stock could be pressured as long as natural gas prices remain low.

CHK had one of the lowest correlations

Surprisingly, Chesapeake Energy (CHK) had one of the lowest correlations in the 12-month, six-month, three-month, and one-month periods. In fact, its coefficients were negative in the nearer three- and one-month periods. This means that natural gas prices could affect the stock positively, albeit marginally, only on a long-term basis.

CHK has been in the news for its increasing debt and weak balance sheet. You can read more about it in the series Can Chesapeake Energy Meet Its Short-Term Debt Obligations?

Meanwhile, the correlation coefficients between the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) and natural gas prices in the past one-year, six-month, three-month, and one-month periods were 0.23, 0.24, 0.31, and 0.14, respectively.

Other upstream companies such as Hess (HES), Marathon Oil (MRO), and Apache (APA) have relatively low correlations with natural gas prices compared to their correlations with crude oil. This is because these companies are oil-heavy producers with little exposure to natural gas prices.

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