In this series, we analyzed Western Refining’s (WNR) proposed term loan, stock movements, business segments, leverage, cash flows, and valuations. In this concluding part, we’ll test the correlation between WNR’s stock performance and crude oil prices.
The correlation coefficient shows the relationship between two variables. A correlation coefficient value of 0 to 1 shows a positive correlation, 0 shows no correlation, and -1 to 0 shows an inverse correlation. We considered the past 12 months’ price history of WNR and WTI (West Texas Intermediate).
WNR and oil price
The correlation coefficient of Western Refining (WNR) and WTI stands at 0.31. The correlation value for WNR and oil prices shows that stock prices for Western Refining move in line with WTI prices to a certain extent. This correlation means that changes in oil prices can explain around 31% of the movement in WNR’s stock price.
WNR’s peers correlation analysis
The situation remains the same for WNR’s peers Marathon Petroleum Corporation (MPC), Valero Energy Corporation (VLO), and Delek US Holding (DK). The correlation of MPC, VLO, and DK, versus WTI stands at 0.29, 0.19, and 0.32, respectively. Plus, Phillips 66 (PSX) shows an even sharper correlation of 0.45 to WTI.
But, on analyzing an integrated energy company, we see that the correlation to oil prices is higher than a downstream company. Case in point? Statoil (STO). The integrated energy giant has a 0.73 correlation with WTI.
If you’re looking for exposure to midsize US companies, you can consider the iShares Core S&P Mid-Cap ETF (IJH). The ETF also has ~4% exposure to energy sector stocks.