Correlation with US crude oil

On November 15–21, major energy ETFs had the following correlations with US crude oil January futures:

  • the VanEck Vectors Oil Services ETF (OIH): 99.2%
  • the SPDR S&P Oil & Gas Exploration & Production ETF (XOP): 96.2%
  • the Energy Select Sector SPDR ETF (XLE): 94.8%
  • the Alerian MLP ETF (AMLP): 92.6%

What’s Dragging Energy ETFs?

US crude oil and energy ETFs

US crude oil January futures fell 3.6% in the trailing week. XLE, AMLP, OIH, and XOP fell 0.6%, 0.8%, 1.8%, and 3.1%, respectively. XOP underperformed other energy ETFs in the trailing week. XOP had the second-highest correlation with US crude oil prices. Moreover, the factors we discussed in Part 1 of this series could further drag on your energy portfolio.

Natural gas

In the trailing week, AMLP, XOP, XLE, and OIH had correlations with natural gas December futures of 19.3%, 27.9%, 42.2%, and 51.8%, respectively. Natural gas December futures rose 10.2%. Based on the correlations, oil prices could have a higher influence on these energy ETFs than natural gas prices.

Equity markets

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

  • AMLP: 84.2%
  • XLE: 82.8%
  • XOP: 77.7%
  • OIH: 70.4%

The S&P 500 Index (SPY) fell 2.9% in the past four trading sessions. The fall in the broader market might have also dragged these ETFs. The correlations of these energy ETFs with the S&P 500 are opposite to the correlation with US crude oil.

Next in this series, we’ll discuss oil’s correlation with the equity market.

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