Oil and the S&P 500

Analysts at BBH assess the recent changes on the correlation between the price of oil and the S&P 500 Index with the following analysis:

"The fluctuation of oil prices is often cited as an important factor driving equities. Our work shows that this is not always the case and that the correlation between the price of oil and the S&P 500 continues to ease."

"We looked the statistical relationship two different ways. We ran the correlation simply on the direction of oil and the direction of the S&P 500. Then we conducted the correlation on the percent change of each time series."

"The first chart (created on Bloomberg) here shows the rolling 60-day correlation of the level of the S&P and the level of oil since the beginning of last year. In early 2016, the correlation was almost perfect, but steadily fell and spend a good part of the second half of the year negatively correlated. Late in the year, the correlation began recovering, and February reached almost 0.8. However, a month later it was into inverse territory. It is now -0.36."

"The second chart here shows the correlation based on the percentage change of each time series. Ultimately investors are interested in the correlation of returns. In Q1 16, the correlation reached almost 0.60, fell by 2/3 to 0.20 before the end of Q2 16. It recovered in Q3 but was unable to surpass the earlier levels. By the time OPEC announced its decision to reduce output to encourage a draw down of inventories, the correlation was trending lower. It briefly dipped into negative territory in February before it recovered in March, but has been trending gently lower over the past two months and now is near 0.18. "

"The takeaway is that based on current correlations, investors in the S&P 500 should not put much weight on the direction of oil. The correlation is not particularly stable, and it is low now. Of course, some sectors will be more sensitive than other sectors to the change in oil prices. However, knowing the change in oil prices will not give one much help in anticipating the S&P 500 index."

Share: Feed news

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.