Natural Gas below $3: Which Gas-Weighted Stocks Could Disappoint


Nov. 20 2020, Updated 3:51 p.m. ET

Natural gas

On February 17, 2017, natural gas futures (UNG) (BOIL) (FCG) contracts for March 2017 delivery closed at $2.83 per MMBtu (million British thermal units), which is ~0.7% below the previous closing price. Natural gas prices fell as traders turned bearish after weather forecasts indicated higher temperatures. Also, the rise in oil rigs could have a negative impact on natural gas prices.

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What’s the correlation?

In this part of the series, we’ll look at the correlations of natural-gas-heavy stocks with natural gas. These companies operate with production mixes of at least 60.0% in natural gas (UNG) (BOIL) (GASL) (FCG). They’re all part of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP).

The following natural-gas-heavy upstream companies had the highest correlations with natural gas futures from January 17, 2017, to February 17, 2017:

  • Antero Resources (AR): 38%
  • Gulfport Energy (GPOR): 28.4%
  • Rice Energy (RICE): 27.7%
  • Range Resources (RRC): 27.6%
  • Southwestern Energy (SWN): 21.1%

The following natural-gas-weighted stocks correlated the least with natural gas futures during the same period:

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.

If you’re bearish on natural gas, particularly after recent warmer weather forecasts, you could consider realigning your portfolio to exclude stocks with a higher correlation in order to avoid any fall in the commodity.

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


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