How energy ETFs fared last week
Below are the performances of four major energy ETFs between May 25, 2017, and June 1, 2017:
Energy ETFs and their correlation with crude oil
With a correlation of 40.0%, the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) had the highest correlation with US crude oil (USO) (UCO) between May 25, 2017, and June 1, 2017. Crude oil prices fell 1.1% in that period. Below are the correlations of the other three energy ETFs with US crude oil during that time period:
- Energy Select Sector SPDR ETF (XLE): 34.2%
- Alerian MLP ETF (AMLP): 7.5%
- VanEck Vectors Oil Services ETF (OIH): 9.2%
Natural gas could have also impacted these energy ETFs between May 25, 2017, and June 1, 2017. All the energy ETFs had a positive correlation greater than 40.0% with natural gas prices during that time period. However, in the last three months, oil prices had a greater impact on these energy ETFs than natural gas, based on the correlations.
Is the broader market impacting energy ETFs?
Based on their correlations with the S&P 500 Index (SPY), all these four energy ETFs could derive important cues from the broader commodities compared to the energy commodities. All of them have a correlation greater than 55.0% with the S&P 500 Index between May 25, 2017, and June 1, 2017.
The broader market plays a vital role in the sentiment related to energy ETFs. But historically, crude oil has been more important to these energy ETFs than the broader markets.
It’s probably a good idea to mainly track oil in order to understand the possible ups and downs of energy ETFs.