Correlation Analysis: SPY, HollyFrontier, and Oil Prices
HollyFrontier: An Investor's Essential Guide
Correlation coefficients
In this series, we’ve analyzed HollyFrontier’s (HFC) stock movements, business segments, leverage, cash flows, and valuations. In this final part of the series, we’ll test the correlation between HollyFrontier’s stock performance, a broader market indicator, and crude oil prices.
Correlation coefficients show the relationship between variables. A correlation coefficient value of zero to one shows a positive correlation, zero states no correlation, and negative one to zero shows an inverse correlation. We’ll look at the five-year price history of HollyFrontier, the SPDR S&P 500 ETF (SPY), and Brent crude.
Correlation analysis
The correlation coefficient of HollyFrontier (HFC) and Brent stands at -0.17. The correlation values for HollyFrontier (HFC) and oil prices indicate that the company’s stock prices and oil prices have an inverse relationship.
The SPDR S&P 500 ETF (SPY) and HollyFrontier’s stock show a strong positive correlation of 0.64. That means around 64% of the movement in HollyFrontier’s stock price can be explained by movement in SPY.
Peer correlation analysis
HollyFrontier’s peer PBF Energy (PBF) shows a weak correlation with Brent, with -0.23. However, downstream player Valero (VLO) shows a more negative correlation with Brent, with -0.73. Marathon Petroleum (MPC) and Tesoro (TSO) also show strong negative correlations with Brent, with -0.68 and -0.84, respectively.
Some integrated energy companies have lower correlations to Brent than downstream companies. A case in point is integrated energy giant ExxonMobil (XOM), which has a 0.23 correlation with Brent. Stock prices of integrated energy companies, due to their amalgamated upstream and downstream segments, show lower correlation to oil prices than stand-alone downstream companies.
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