Since July the price of crude has tumbled (see chart). Companies across the industry have seen their share prices sag in response. Some have lost tremendously over the last few months including investors in Petrobras (PBR), which has lost almost 50% of its value recently.
The sector is well correlated as a group; while most stocks haven’t been clobbered as bad as PBR, most follow a similar trend along with the price of oil. Looking at the correlation matrix, we can see that Western multinational oil companies form a highly correlated sub-structure, with emerging market champions Petrochina (PTR) and PBR loosely coupled on the outside.
European Multinational Total (TOT) has the highest average correlation with the rest of the sector, followed closely by Chevron (CVX). The industry also exhibits several very tight stock pairs:
- Exxon Mobil (XOM) and CVX with pair-wise correlation of 0.74
- TOT and Eni (E) with pair-wise correlation of 0.73
- CVX and ConocoPhilips (COP) also with pair-wise correlation of 0.73
The multiple linkages between CVX and other companies suggest that it is a leader within the cluster along with TOT.