Correlation with oil

Between December 14 and December 21, 2017, the VanEck Vectors Oil Services ETF (OIH) had the highest correlation (56.9%) with US crude oil February futures among our list of energy subsector ETFs.

The Correlation between Oil and Energy ETFs, Post–Tax Reform

Other energy subsector ETFs’ correlation with oil prices was as follows:

  • the Energy Select Sector SPDR ETF (XLE): 13.9%
  • the SPDR S&P Oil & Gas Exploration & Production ETF (XOP): 0.9%
  • the Alerian MLP ETF (AMLP): -59%

Over this time period, US crude oil February futures rose 2.2%. XOP rose 6.3%, the most among the energy ETFs we’re looking at. XLE gained 3.7%. XOP’s and XLE’s low correlations suggests that tax reform may have steered their gains. OIH rose 5.2%, while AMLP fell 1.5%.

Natural gas

AMLP, XOP, and XLE had a correlation of 88.2%, 34.3%, and 13.2%, respectively, with natural gas January futures in the five trading sessions ended December 21, 2017. During this period, OIH had a correlation of -38.1% with natural gas futures, which fell 3.2%. This fall could be behind AMLP’s losses, based on its high correlation with natural gas.

Broader market

Between December 14 and December 21, 2017, OIH, XLE, and XOP had a correlation of -45.1%, -42.2%, and -37.7%, respectively, with the S&P 500 (SPY). AMLP had a 10.4% correlation with the S&P 500, which rose 1.2%. Whereas the broader market seemed to have weak effects on energy ETFs that week, both the broader market and energy ETFs could be boosted by tax reform.

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