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ETFs highly correlated with crude oil
The Vanguard Energy ETF (VDE) and the SPDR S&P Oil and Gas Exploration ETF (XOP) had a correlation of about 38.8% and 30.6% with US crude oil between February 11, 2016, and March 22, 2016. On February 11, 2016, crude made a multiyear low of $26.05. On March 22, 2016, WTI (West Texas Intermediate) crude oil was at a year high. In the same timeframe, XOP returned 19.80%. The other three ETFs returned about 11%–12%. Among the four ETFs shown in the following table, VDE has the highest correlation with WTI crude oil.
XLE and IXC have a low correlation with crude oil
The Energy Select Sector SPDR ETF (XLE) had a correlation of 14.8% with US crude oil between February 11, 2016, and March 22, 2016. In the same timeframe, the iShares Global Energy (IXC) had a correlation of 15.2% with US crude oil.
The top five constituents of XLE have a total weight of around 48% in the ETF. It includes large-cap exploration and production companies such as ExxonMobil (XOM), Chevron (CVX), and EOG Resources (EOG). Companies like ExxonMobil and Chevron have diversified operations that include businesses like refining. Refining businesses did well during the crude downturn. Refining cracks stayed advantageous, even as crude oil fell.
US-based oil and gas companies account for 60% of IXC. It’s important to note that 40% are foreign oil and gas companies. Cross-currency risk and regional factors impact IXC’s performance compared to other energy ETFs when correlated with crude oil.
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