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Correlation Analysis: Marathon Petroleum’s Stock, Oil Prices, and the Broad Market

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What is a correlation coefficient?

A correlation coefficient shows the relationship between two variables. A correlation coefficient of 0 to 1, for example, shows a positive correlation, whereas a correlation coefficient of 0 indicates no correlation, and a correlation coefficient of -1 to 0 shows an inverse correlation.

In this final part of our series, we’ll consider the 12-month price history of Marathon Petroleum (MPC), WTI (West Texas Intermediate), and the SPDR S&P 500 ETF (SPY).

Correlation Analysis: Marathon Petroleum's Stock, Oil Prices, and the Broad Market

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MPC’s stock and oil price and broad market

The correlation coefficient of Marathon Petroleum (MPC) and WTI stands at 0.26. This correlation value for MPC and the oil price indicates that in past one year, stock prices of MPC have moved, more or less, in line with crude oil prices.

On the other hand, the correlation between a broad market indicator like the SPDR S&P 500 ETF (SPY) and Marathon Petroleum (MPC) is higher, at 0.65. This means that around 65% of the movement in MPC’s price can be explained by changes in the SPY.

This is due to the fact that SPY is an indicator of the broader economy. So when an economy grows, the refining sector also grows, just as when economic health improves, the demand for fuels increases, leading to higher prices and volumes of refined products.

Peer correlations

Valero Energy’s (VLO), Tesoro’s (TSO), PBF Energy’s (PBF), and Phillips 66’s (PSX) correlation to SPY stand at 0.62, 0.56, 0.49, and 0.77, respectively. Notably, the Vanguard High Dividend Yield ETF (VYM) has a ~10% exposure to energy stocks and contains PSX and VLO in its portfolio.

For ongoing and related analysis, check out Market Realist’s Downstream Oil and Gas page.

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