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.
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.