What is a correlation coefficient?
So far in this series, we’ve discussed ExxonMobil’s (XOM) Permian Basin deal and oil discovery in Guyana. We’ve also analyzed the stock’s movements, analyst ratings, dividend yield trend, beta position, short interest changes, implied volatility movements, and valuations. In this article, we’ll assess the correlation between XOM stock and WTI (West Texas Intermediate).
A correlation coefficient shows the relationship between two variables. A correlation coefficient value of 0 to 1 shows a positive correlation, 0 states no correlation, and -1 to 0 shows an inverse correlation. For our purposes, we’ve considered the past 12 months’ worth of price history for XOM stock and WTI.
XOM stock and WTI
Integrated energy companies such as ExxonMobil are affected to varying degrees by volatility in crude oil prices. XOM’s correlation coefficient with WTI stands at 0.56, meaning that on average, 56% of the movements in XOM’s stock price can be explained by changes in WTI’s price.
ExxonMobil’s peer Petrobras (PBR) has a correlation coefficient of 0.60 with WTI. Other integrated energy players Total (TOT) and Suncor Energy (SU) have higher positive correlations of 0.66 and 0.73, respectively, with WTI.
On the other hand, standalone downstream companies show weak correlations with crude oil’s price. A case in point is Valero Energy (VLO), a refiner with a 0.16 correlation with WTI.
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