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Correlations between Energy ETFs and the Broader Market’s Moves

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Dec. 4 2020, Updated 10:53 a.m. ET

Energy ETFs’ correlations

On February 1–8, 2018, energy subsector ETFs’ correlations with US crude oil prices were:

  • the Alerian MLP ETF (AMLP) at -30%
  • the Energy Select Sector SPDR ETF (XLE) at -13%
  • the VanEck Vectors Oil Services ETF (OIH) at -1.7%
  • the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) at -1.2%

In the seven calendar days to February 8, 2018, OIH, XOP, XLE, and AMLP fell 13.6%, 12.7%, 11.8%, and 8.2%, respectively. US crude oil March futures fell 7.1% during this period. Although the correlation of energy ETFs with US crude oil prices is weak, oil’s downturn is bearish for the ETFs’ energy stocks.

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Natural gas

On February 1–8, 2018, energy ETFs’ correlations with natural gas futures were:

  • XLE at 48.8%
  • OIH at 40.3%
  • XOP at 38%
  • AMLP at 0.4%

Natural gas March futures declined 5.6% in the trailing week.

Broader market

The energy ETFs’ correlations with the S&P 500 Index (SPY) in the trailing week were:

  • XLE at 89.9%
  • OIH at 88.2%
  • AMLP at 81%
  • XOP at 80.5%

Based on the correlations, the bearish sentiment in the broader markets appears to have swayed these energy ETFs on a daily basis in the short term. During this period, the S&P 500 Index fell 8.5%. However, oil’s impact on the energy stocks in these energy ETFs can’t be ignored in the longer term.

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