12 Oct

Is the Broader Market Pulling Energy ETFs?

WRITTEN BY Rabindra Samanta

Correlation with US crude oil

On October 4–11, major energy ETFs had the following correlations with US crude oil November futures:

  • the Energy Select Sector SPDR ETF (XLE): 99.6%
  • the Alerian MLP ETF (AMLP): 95.4%
  • the SPDR S&P Oil & Gas Exploration & Production ETF (XOP): 93.5%
  • the VanEck Vectors Oil Services ETF (OIH): 88.7%

Is the Broader Market Pulling Energy ETFs?

Correlation between US crude oil and energy ETFs

US crude oil November futures fell 4.5% in the trailing week. XOP, OIH, XLE, and AMLP returned 7.3%, 5.7%, 5.7%, and 2.8%, respectively, during this period. The fall in oil prices might have dragged these energy ETFs.

Natural gas

On October 4–11, XLE, OIH, AMLP, and XOP had correlations with natural gas November futures of 37.5%, 24.7%, 22.5%, and 19.9%, respectively. Natural gas November futures rose 1.8% during this period.

Based on the correlations, the fall in oil prices could be more important to these energy ETFs than natural gas’s rise.

Equity markets

Energy ETFs had the following correlations with the S&P 500 Index in the past five trading sessions:

  • OIH: 98.9%
  • XOP: 94.4%
  • XLE: 91.6%
  • AMLP: 88.2%

The S&P 500 Index (SPY) has fallen 6% in the past five trading sessions. The large fall in the broader market might have also triggered the downside in these ETFs—based on the correlations.

Next, we’ll measure oil’s correlation with the equity market.

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