When markets do not believe current oil prices are sustainable.In such situations, Energy stocks will trade in line with the broad market rather than on sector fundamentals. When equity sector correlations are high due to macro concerns, as was the case in 2011, late 2018 or 2020. ![]() Now, exactly why are Energy stocks not trading more in line with crude prices? The 2010 – present history says this can happen for one of two reasons: The current 50-day trailing oil price/Energy stock correlation is 0.45, right on the 1 standard deviation downside level of 0.44.Ĭomment: since WTI first crossed $90/barrel on February 11th during its recent rally, crude is up 14 percent, but large cap Energy is only up 9 percent, and on several days one asset zigged while the other one zagged. That’s another way to express the same issue noted in the analysis above: crude and Energy stocks are not trading together as much as they typically do.For example, correlations were below 0.44 (1 standard deviation) in 2011, through most of 2013 – 2014, 2017, late 2018, and 2020. Energy stocks can - and often do - decouple from oil prices, which is why the long-run mean correlation between the two is so low.That is an r-squared of 35 percent, lower than one might think. Since 2010, the 50-day correlation between daily changes in WTI crude prices and daily returns for the S&P 500 Energy sector has averaged 0.59. ![]() Topic #1: The correlation between WTI oil prices and price returns for the S&P large cap Energy sector (symbol: XLE). Let’s start with some background data: Oil Prices/Energy Stock Correlations, Rate Expectations By admin_45 in Blog
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