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Recovery in Natural Gas: A Look at Stocks with High Correlation

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Natural gas

On August 22, 2016, natural gas futures (UNG) (BOIL) (FCG) contracts for September delivery closed at $2.68 per MMBtu (million British thermal units)—3.7% above its previous closing price. It’s 10.3% below its highest level for 2016 of $2.99 per MMBtu on July 1. The current recovery in natural gas prices could be attributed to the hotter weather forecast in the eastern US. Also, natural gas production could be impacted in the Gulf of Mexico by a possible storm emerging in the Atlantic. This also supports the prices.

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What’s the correlation?

In this part of the series, we’ll look at the correlation of upstream companies that operate with a production mix of at least 60% in natural gas (UNG) (BOIL) (UGAZ) (GASX) (GASL) (FCG) with natural gas prices. These upstream companies are part of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP).

The following upstream companies had the greatest correlation to natural gas futures between July 22 and August 22, 2016:

  • Southwestern Energy (SWN) – 64.7%
  • EQT (EQT) – 59.4%
  • Range Resources (RRC) – 50.7%
  • Memorial Resource Development (MRD) – 49.9%
  • Antero Resources (AR) – 49.8%
  • Cabot Oil & Gas (COG) – 45.3%
  • Chesapeake Energy (CHK) – 44.9%

The following natural gas–weighted stocks correlated the least with natural gas futures over this period:

  • WPX Energy (WPX) – 37.2%
  • Gulfport Energy (GPOR) – 31.9%

Natural gas–weighted stocks with high correlations to natural gas futures moved with natural gas. On the other hand, stocks with low correlations weren’t impacted as much by natural gas price movements.

In the next part of this series, we’ll see how natural gas–weighted stocks performed compared to natural gas.

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