uploads/2017/01/Correlations.jpg

What’s the Correlation Between XOM and WTI?

By

Updated

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.

Article continues below advertisement

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.

If you’re looking for exposure to large capitalization stocks, you can consider the Vanguard 500 Index Fund Investor Shares (VFINX). The fund also has ~8% exposure to energy sector stocks.

Advertisement

More From Market Realist