
Broader Market Might Have Limited the Upside in Energy ETFs
By Rabindra SamantaUpdated
Correlation with US crude oil
Between December 27 and January 3, major energy ETFs had the following correlations with US crude oil February futures:
US crude oil and energy ETFs
US crude oil February futures rose 5.6% in the trailing week. OIH, AMLP, XOP, and XLE rose 3.5%, 3.1%, 1.3%, and 0.7%, respectively. OIH, which outperformed other energy ETFs, might have been influenced by US crude oil prices. OIH had the highest correlation with US crude oil prices. US crude oil prices rose 5.6% in this period.
Natural gas
In the trailing week, OIH, AMLP, XOP, and XLE had correlations with natural gas February futures of 85.6%, 36.4%, 35.9%, and 19.5%, respectively. Natural gas February futures fell 16.9%. Based on the correlations, oil could be an important driver for most of these energy ETFs.
Equity markets
Energy ETFs had the following correlations with the S&P 500 Index in the past four trading sessions:
- XLE: 60.1%
- XOP: 40.9%
- AMLP: 26%
- OIH: -18.4%
The S&P 500 Index (SPY) fell 1.6% in the trailing week. The fall in the broader market might have limited the upside in most of these ETFs. In fact, XLE, which had the highest correlation with the S&P 500, had underperformed other energy ETFs in the trailing week. The sentiments in the equity market are also an important driver for energy ETFs. Notably, OIH, which had a mild negative correlation with the S&P 500 had the highest correlation with oil in the past four trading sessions.
Next, we’ll discuss oil’s correlation with the equity market.