How Can Energy ETF Investors Track the Industry?



Correlations of top energy ETFs with crude oil

In this part, we’ll look at the correlations of top energy ETFs with crude oil (SCO) and natural gas (BOIL) (GASL). At ~59.1%, the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) shows the highest correlation with US crude oil from January 23, 2017, to February 23, 2017.

Below are the correlations of other energy ETFs with US crude oil over the last month:

  • Alerian MLP ETF (AMLP): ~42.7%
  • VanEck Vectors Oil Services ETF (OIH): ~43.2%
  • Energy Select Sector SPDR ETF (XLE): ~49%

Over the last three months, OIH had an ~65.6% correlation with US crude oil. XOP, AMLP, and XLE had correlations of ~65%, ~46.9%, and ~62.2%, respectively, during the same period.

In the past month, all four of the above ETFs saw their correlations with crude oil fall, as compared with their correlations over the past three months.

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How do top energy ETFs correlate with natural gas?

All of the ETFs except AMLP saw their correlations with natural gas (UGAZ) fall in the past month. In the trailing month, only AMLP had a positive correlation with natural gas among the above group.

However, all of the ETFs are more correlated to crude oil (USO) than natural gas (DGAZ), and so it appears that crude oil is the bigger driver for energy ETFs right now.

Remember, a positive correlation with crude oil means that any move in crude oil can impact these ETFs directly. If crude oil goes up, these ETFs will gain, and so it’s a good idea to watch crude oil’s (UCO) (BNO) (DBO) movements in order to understand how these ETFs will perform.


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