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Did the Best-Performing OFS stocks Take Cues from Crude Oil?


Nov. 28 2017, Updated 7:30 a.m. ET

ION Geophysical’s correlation with crude oil

In this part, we’ll analyze the correlation between ION Geophysical (IO), Newpark Resources (NR), RPC (RES), McDermott International (MDR), and CARBO Ceramics’ (CRR) stock prices with West Texas Intermediate crude oil prices.

The correlation coefficient between ION Geophysical’s stock price and crude oil prices from December 30, 2016, to November 20, 2017, was -0.39. During this period, the returns indicate a negative relationship between ION Geophysical stock and crude oil prices. The correlation coefficient between ION Geophysical and the Dow Jones Industrial Average (DJIA-INDEX) was -0.67 since December 30, 2016.

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Correlation coefficients and crude oil

As noted in the above graph, the VanEck Vectors Oil Services ETF’s (OIH) correlation with crude oil since December 30, 2016, was 0.41. Newpark Resources’ correlation coefficient since December 30, 2016, was -0.38. RPC’s correlation coefficient was -0.30, while CARBO Ceramics’ correlation was -0.23. Only McDermott International’s correlation coefficient was positive during this period (0.57).

Except for McDermott International, all of the other four oilfield services companies’ correlations with crude oil prices fell from December 30, 2016, to November 20, 2017—compared to the previous year.

What does crude oil’s correlation mean for OFS stocks?

A high correlation means that the stock was impacted more by crude oil’s movement. A negative correlation implies that the stock moved inverse to crude oil’s moves. A low correlation means that the energy stock moved independently from crude oil’s moves.

In the next part, we’ll look at Wall Street analysts’ recommendations for these top-performing OFS stocks.


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