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Natural Gas Rises on Cool Weather: Will Gas-Weighted Stocks Gain?

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Natural gas

On November 14, 2016, the natural gas futures (UNG) (BOIL) (FCG) contracts for November delivery closed at $2.75 per MMBtu (million British thermal units). They were ~4.9% above their previous closing price. The rise in natural gas prices was because of an expectation of cooler weather.

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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 natural gas–heavy upstream companies had the greatest correlation to natural gas futures between October 14 and November 14, 2016.

  • Southwestern Energy (SWN) – 63.3%
  • Range Resources (RRC) – 52.3%
  • EQT (EQT) – 46.7%
  • Cabot Oil & Gas (COG) – 46%
  • Rice Energy (RICE) – 38.1%
  • Antero Resources (AR) – 34.8%
  • Gulfport Energy (GPOR) – 34.8%

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

  • Chesapeake Energy (CHK) – 13%
  • WPX Energy (WPX) – 0.8%

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. So, investors who are bullish on natural gas can realign their portfolios to higher correlated stocks to take advantage of any rise in the commodity.

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

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