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Fed Fear and Crude Oil: Identifying Stocks with a High Correlation


Nov. 20 2020, Updated 3:19 p.m. ET

US crude oil

On August 29, 2016, US crude oil (USO) (OIIL) (USL) (SCO) contracts for October delivery closed at $46.98 per barrel—1.4% below their previous closing price. It’s 8.3% below the highest level for active contracts in 2016 of $51.23 per barrel achieved on June 8.

Last week, crude oil prices fell due to supply glut fears. On August 29, 2016, crude oil prices fell due to market expectations of a rate hike next month. The US Dollar Index (UUP) rallied 1.1% between August 22 and August 29, 2016.

In this series, we’ll take a close look at the correlations between crude oil–weighted stocks and crude oil. We’ll also look at the correlations between natural gas–weighted stocks and natural gas.

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Oil-weighted stocks

Let’s look at some of the upstream companies that are part of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) and operate with a production mix of at least 60% in crude oil. Below are the correlations of these oil-weighted companies with West Texas Intermediate crude oil from July 29 to August 29, 2016. You can also see these in the above table.

Oil-weighted stocks that are correlated strongly with crude oil over the last month include:

  • Murphy Oil (MUR) – 81.9%
  • Kosmos Energy (KOS) – 77.5%
  • Oasis Petroleum (OAS) – 77.2%
  • Whiting Petroleum (WLL) – 76.9%
  • Hess (HES) – 76.8%
  • RSP Permian (RSPP) – 76%
  • Denbury Resources (DNR) – 74.5%

Oil-weighted stocks that had the lowest correlation with crude oil include the following:

  • Diamondback Energy (FANG) – 52.3%
  • Synergy Resources (SYRG) – 48.8%

Investors who are bullish on crude oil might use some of the stocks that have a high correlation with crude oil to realign their portfolios.

In the next part of this series, we’ll look at the returns of crude oil–weighted stocks compared to crude oil.


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