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Natural Gas Rally Reignites: Which Gas-Weighted Stocks Will Follow?

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Dec. 27 2016, Published 10:12 a.m. ET

Natural gas                                           

On December 23, 2016, natural gas futures (UNG) (BOIL) (FCG) contracts for February delivery closed at $3.68 per MMBtu (million British thermal units), which was ~3.2% above the previous closing price. The rise in natural gas prices was due to the forecast of lower temperatures, which could increase the use of natural gas for heating purposes during the winter.

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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 60.0% 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 from November 23 to December 23, 2016:

  • Southwestern Energy (SWN): 80%
  • Range Resources (RRC): 72.4%
  • EQT (EQT): 63.2%
  • Cabot Oil & Gas (COG): 55.1%
  • Rice Energy (RICE): 54.9%
  • Antero Resources (AR): 50%
  • Gulfport Energy (GPOR): 49.8%

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

  • Chesapeake Energy (CHK): 22.7%
  • WPX Energy (WPX): -14.4%

Natural-gas-weighted stocks with high correlations to natural gas futures moved with natural gas. On the other hand, stocks with low or negative correlations weren’t impacted as much by natural gas price movements. So, if you’re bullish on natural gas, you could consider realigning your portfolios with 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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