These Gas-Weighted Stocks Could Mirror Natural Gas’s Bearishness


Nov. 20 2020, Updated 5:18 p.m. ET

Natural gas

On April 24, 2017, natural gas futures (UNG) (BOIL) (FCG) contracts for June 2017 delivery closed at $3.16 per MMBtu (million British thermal units), which was ~1% below the previous day’s closing price. Natural gas prices fell as traders turned bearish because of the mild weather. The rising number of oil rigs could also have a negative impact on natural gas prices.

Natural gas June futures fell 2.8% on a closing price basis in the week ended April 24, 2017. By comparison, the Energy Select Sector SPDR ETF (XLE) fell 1.8%, and the S&P 500 Index (SPY) (IVV) (VNN) (SPX-INDEX) rose 1.1%. Energy accounts for 6.6% of the S&P 500 Index.

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What’s the correlation?

The companies below 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 March 24, 2017, to April 24, 2017:

The following natural-gas-weighted stocks had the lowest correlations with natural gas futures during the same period:

Our analysis

Natural-gas-weighted stocks with high correlations to natural gas futures have moved in tandem with natural gas. Stocks with low correlations weren’t impacted as much by natural gas’s price movements.

If you’re bearish on natural gas, you can consider realigning your portfolio to exclude stocks that have higher correlations with the commodity.

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


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