Here is a quick review of how correlations have behaved over the last 2 years across the many shades of oil. Key benchmark used was Brent and it correlations were tracked against WTI, Fuel Oil, Diesel Oil, Natural Gas, Corn Oil, Soybean Oil and Palm Oil. WTI, Fuel and Diesel were used to provide a benchmark of correlations against other edible oils.
Except for Crude Palm Oil the data used for commodities are cash prices, that is, the price of the physical commodity as opposed to the prices of future contracts of that commodity from the Wall Street Journal Asia edition website. For Crude Palm Oil we have used the daily settlement prices on future contracts (FCPO prices) for the spot month as available on Bursa Malaysia website. All commodity prices except for Silver and Crude Palm Oil are denominated in US dollar. Silver prices are denominated in Sterling whereas Crude Palm Oil prices are denominate in Malaysian Ringgit.
The correlations have been calculated on data for the period January 2008- December 2009. Besides the numerical measure for correlation (the correlation coefficient or r), correlation have also been graphically depicted:
In addition to assessing correlations over this entire period, we have also looked at how the correlation coefficients (i.e. the numerical measures) have varied over different periods. This was done to assess degree of stability in the correlation figures and also to identify periods of time when correlations broke down or changed. Increased correlations in any period over those normally experience could be indicative of increase systematic risk in the market. The periods considered were:
January 2008 to December 2009
January to December 2008
January to December 2009
January to June 2008
Brent & West Texas Intermediate Crude
Duration Correlation coefficient
Jan08-Dec09 0.99
Jan-Jun08 0.99
Jul-Dec08 0.99
Jan-Jun09 0.96
Jul-Dec09 0.95
Jan-Dec08 0.99
Jan-Dec09 0.98
Brent & Fuel Oil
Duration Correlation coefficient
Jan08-Dec09 0.98
Jan-Jun08 0.97
Jul-Dec08 0.99
Jan-Jun09 0.85
Jul-Dec09 0.95
Jan-Dec08 0.99
Jan-Dec09 0.95
Brent & Diesel Fuel
Duration Correlation coefficient
Jan08-Dec09 0.98
Jan-Jun08 0.96
Jul-Dec08 0.99
Jan-Jun09 0.86
Jul-Dec09 0.95
Jan-Dec08 0.98
Jan-Dec09 0.95
Brent & Natural Gas
Duration Correlation coefficient
Jan08-Dec09 0.84
Jan-Jun08 0.97
Jul-Dec08 0.87
Jan-Jun09 – 0.47
Jul-Dec09 0.44
Jan-Dec08 0.88
Jan-Dec09 -0.22
Brent & Corn Oil
Duration Correlation coefficient
Jan08-Dec09 0.90
Jan-Jun08 0.63
Jul-Dec08 0.96
Jan-Jun09 0.91
Jul-Dec09 0.40
Jan-Dec08 0.85
Jan-Dec09 0.87
Brent & Soybean Oil
Duration Correlation coefficient
Jan08-Dec09 0.93
Jan-Jun08 0.71
Jul-Dec08 0.98
Jan-Jun09 0.74
Jul-Dec09 0.81
Jan-Dec08 0.93
Jan-Dec09 0.62
Brent & Crude Palm Oil
Duration Correlation coefficient
Jan08-Dec09 0.81
Jan-Jun08 0.35
Jul-Dec08 0.96
Jan-Jun09 0.63
Jul-Dec09 0.53
Jan-Dec08 0.81
Jan-Dec09 0.43