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Why MRO Failed to Rise despite High Correlation with Crude Oil

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Marathon Oil’s correlations last week

As we have seen in the previous part, Marathon Oil (MRO) stock price rose marginally by 0.53% last week. Crude oil and the SPDR S&P 500 ETF (SPY) moved up by 4.0% and 0.97%, respectively, in the same week. However, natural gas was down by 9.2%. In this part, we will try to quantify the relationship between the daily movements of MRO’s stock price and crude oil prices by studying MRO’s correlation coefficient with crude oil over the last week and the last month. We will also look at the extent to which MRO’s stock price followed daily natural gas prices and the S&P 500 Index over these same timeframes.

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For the week ending November 24, Marathon Oil’s (MRO) stock had a correlation of ~68% with crude oil (USO). This means that movements in crude oil had a very high influence on MRO’s stock. Accordingly, on Monday, MRO’s stock experienced a strong decline of ~5% due to a decline in crude oil prices. However, the decline in crude oil prices on Monday was marginal. For the rest of the week, fluctuations in MRO’s stock price matched the magnitude of the movement in crude oil. Thus, MRO’s stock underperformed crude oil prices last week despite having a strong correlation. MRO sock’s correlation with the SPDR S&P 500 ETF (SPY) stood at ~14%, meaning movements in MRO’s stock were in synch with movements in the SPDR S&P 500 ETF (SPY) last week.

In comparison to crude oil and the SPDR S&P 500 ETF (SPY), MRO stock’s correlation with natural gas was negative at ~25%. This means that movements in natural gas had no influence on MRO’s stock last week.

MRO’s stock has shown correlations of 43%, 47%, and 60% with crude oil (USO), natural gas (UNG), and the SPDR S&P 500 ETF (SPY) prices, respectively, over the last one month.

Marathon Oil’s peers

MRO’s peer Occidental Petroleum (OXY) had shown a correlation of ~64% with crude oil prices last week and rose 0.03% due to the increase in crude prices. OXY had a correlation of about -18% and 9% with natural gas and the SPDR S&P 500 ETF (SPY) last week. Occidental Petroleum’s production mix contains ~69% crude oil. Thus, OXY has a high correlation with crude oil prices.

To know more about the correlation of various upstream stocks with various energy commodities, refer to Market Realist’s series Fall in Energy Commodities Impacts Energy Stocks.

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