Correlation of integrated energy stocks with WTI
In the previous article, we evaluated ExxonMobil’s (XOM), Chevron’s (CVX), Royal Dutch Shell’s (RDS.A), and BP’s (BP) stock performances. We saw that so far in the second quarter, these stocks have moved in line with the SPDR S&P 500 ETF (SPY) as well as with WTI (West Texas Intermediate) crude oil.
Now let’s see if the correlation coefficients show the same pattern. We’ll even compare correlation coefficients in the second quarter with coefficients in the trailing 12 months.
Correlations in the second quarter
XOM’s correlation coefficient with WTI stands at 0.50 in the second quarter. This means that changes in oil prices can explain ~50% of the changes in ExxonMobil stock price in the quarter.
However, if we consider XOM’s correlation coefficient with SPY, it stands at 0.56, higher than its correlation with WTI. This trend is visible in another major American company, CVX. Chevron stock’s correlation with SPY stands at 0.62 compared to 0.41 with WTI in the second quarter.
Contrarily, international integrated majors Shell and BP show an opposite trend. They are more strongly correlated with WTI than with SPY.
Strengthening correlations to oil
Now let’s consider whether these stocks’ correlations with oil have strengthened in the second quarter compared to the trailing 12 months. XOM’s correlation with WTI stands at 0.45 for the trailing 12 months compared to 0.50 in the second quarter. This difference implies that ExxonMobil stock’s correlation with WTI has strengthened in the second quarter compared to the trailing 12 months.
A similar trend is visible in CVX, Shell, and BP. However, BP has seen the highest rise in its correlation with WTI in the second quarter. In terms of absolute levels, BP also has the strongest correlation with WTI in the second quarter so far.
We can conclude that American integrated energy stocks have trended more in line with SPY than with WTI in the second quarter. However, international stocks have shown a contrary trend. Nonetheless, all the stocks have seen surges in their correlations with oil prices in the second quarter. Perhaps soaring oil prices in the quarter have created positive sentiments for these stocks.
In the next article, we’ll look at integrated energy stocks’ moving averages.