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Which Energy ETF Tracks Crude Oil Closer?

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Jul. 22 2016, Updated 8:58 a.m. ET

Correlation of top energy ETFs with crude oil

In this part of the series, we’ll look at the correlations of top energy ETFs that hold oil and natural gas companies with crude oil and natural gas. The SPDR S&P Oil & Gas Exploration & Production ETF (XOP) had the highest correlation of 84.4% with US crude oil (USO) (UWTI) (DWTI) between June 21 and July 21, 2016.

Below are the correlations of the top energy ETFs with US crude oil in that period:

  • The Energy Select Sector SPDR ETF (XLE) – 80.1%
  • The Alerian MLP ETF (AMLP) – 69.9%
  • The VanEck Vectors Oil Services ETF (OIH) – 78.80%

Over the last three months, XOP had the highest correlation of 78.1% with US crude oil. XLE, AMLP, and OIH had correlations of 73.6%, 49.2%, and 71.4%, respectively, during that period. The correlation of the above ETFs with oil rose significantly in the past month compared to the last three months.

Historically, XOP has a higher correlation to crude oil than other ETFs. It tracks crude oil closer because it has more upstream companies in its portfolio.

Some of XOP’s constituents include Continental Resources (CLR), RSP Permian (RSPP), Diamondback Energy (FANG), Halcon Resources (HK), Synergy Resources (SYRG), and Kosmos Energy (KOS).

Read Which Oil-Weighted Stocks Have Strong Correlations with Crude Oil? for more about the correlation of oil-weighted stocks with oil.

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How do top energy ETFs correlate with natural gas?

All of the ETFs that we looked at in this series saw their correlations with natural gas (GASL) (BOIL) rise in the past month compared to the last three months.

However, all of these ETFs are more correlated to crude oil than to natural gas. So, crude oil is the bigger driver for these energy ETFs. Positive correlations mean that a rise in crude oil will drive these ETFs higher. It’s a good idea to watch movements in crude oil in order to understand how these ETFs will perform.

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