Correlations with US crude oil
Below are major energy ETFs’ correlations with US crude oil July futures on May 31–June 7:
- VanEck Vectors Oil Services ETF (OIH) at 81.1%
- SPDR S&P Oil & Gas Exploration & Production ETF (XOP) at 70%
- Energy Select Sector SPDR ETF (XLE) at 48%
- Alerian MLP ETF (AMLP) at 8.8%
US crude oil July futures fell 1.6% in the trailing week. In the seven days leading up to June 7, AMLP, OIH, XLE, and XOP’s returns were 1.8%, 1.5%, 1.4%, and -0.1%, respectively.
AMLP outperformed other energy ETFs and US crude oil prices in the past five trading days. Notably, AMLP had a low correlation with US crude oil prices. Early in the trailing week, AMLP ignored the fall in US crude oil prices.
For the remaining energy ETFs, the fall in oil prices could either have dragged or limited the upside—based on their correlations with oil.
On May 31–June 7, XLE, XOP, and OIH had correlations of 92.8%, 79%, and 60.9%, respectively, with natural gas July futures. During the same period, AMLP’s correlation with natural gas futures was -16.8%. So, AMLP seems to have ignored the movement in both energy commodities. Natural gas July futures fell 0.7% in the trailing week.
In the seven days leading up to June 7, these energy ETFs’ correlations with the S&P 500 Index (SPY) were:
- OIH at -50.2%
- AMLP at -37.2%
- XOP at -37.1%
- XLE at -13.7%
In the last five trading sessions, SPY rose 2.4%. Although the correlations were negative, the rise in equity markets could have helped these energy ETFs overcome US crude oil’s weakness.
Next, we’ll analyze the relationship between oil prices and US equity indexes.