6 Oct

Are Energy ETFs Following Broader Markets?

WRITTEN BY Rabindra Samanta

Energy ETFs

Among the major energy sub-sector ETFs, the VanEck Vectors Oil Services ETF (OIH) had the highest correlation of 93.5% with US crude oil prices between September 28 and October 5, 2017. In the trailing week, US crude oil prices fell 1.5%, while OIH fell 0.8%.

The other three major energy sub-sector ETFs closed in the green during this period as follows:

  • The SPDR S&P Oil & Gas Exploration & Production ETF (XOP) rose 0.4%.
  • The Alerian MLP ETF (AMLP) rose 2.1%.
  • The Energy Select Sector SPDR ETF (XLE) rose 0.2%.

Are Energy ETFs Following Broader Markets?

AMLP outperformed our list of major energy subsector ETFs in the past five trading sessions. It had a mild correlation of only 29.9% with US crude oil active futures during this period. Over the same period, XLE and XOP had correlations of 75.8% and 20.8%, respectively, with US crude oil active futures. XLE closed in the green for almost seven calendar days leading up to October 5, 2017.

Natural gas

In the trailing week, natural gas active futures fell 3.1%. Only OIH had a positive correlation of 49.3% with natural gas prices during this time period. The downturn in the energy prices could explain the fall in OIH. The remaining three energy subsector ETFs—XLE, AMLP, and XOP—had correlations of -4.2%, -48.9%, and -70.2%, respectively, with natural gas prices.

The S&P 500 Index

The energy subsector ETFs below had positive correlations with the S&P 500 Index in the trailing week. The correlations were as follows:

  • AMLP at 84.5%
  • XOP at 83.6%
  • XLE at 83.4%
  • OIH at 50.2%

Between September 28 and October 5, 2017, the S&P 500 Index (SPY) rose 1.7%. This could explain the rise in the above energy subsector ETFs, despite the fall in energy prices. AMLP, XOP, and XLE had higher degrees of correlations with the S&P 500 Index than OIH had during the same period.

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