Correlations between Energy ETFs and the Broader Market’s Moves

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.

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.

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.