Commodities vs. commodity stocks

[This article was first published on Commodity Stat Arb, and kindly contributed to R-bloggers]. (You can report issue about the content on this page here)
Want to share your content on R-bloggers? click here if you have a blog, or here if you don't.

Just got back from a couple of months vacation in NZ so brief posting this month.
Another common field of mean reversion analysis relates to commodities and commodity related stocks.  In this analysis, I compare the prompt month crude oil price, CL1 to the price of XOP, an ETF that invests in oil & gas exploration & production companies.
As expected, these two prices track each other fairly closely over time:

 A similar analysis as before, performing an ADF test suggests that over its history the ratio of price series has exhibited mean reversion characteristics with a half life of 37 trading days or approximately two months.  This isn’t ideal for trading; it would be preferable if the relationship exerted itself more strongly.  Nevertheless with an ADF test statistic of 4% the evidence seems strong.
This relationship can be generalized to other commodities and commodity equity groupings, providing a guide to over/under valuation of commodity equities in relationship to their corresponding commodity prices.

To leave a comment for the author, please follow the link and comment on their blog: Commodity Stat Arb. offers daily e-mail updates about R news and tutorials about learning R and many other topics. Click here if you're looking to post or find an R/data-science job.
Want to share your content on R-bloggers? click here if you have a blog, or here if you don't.

Never miss an update!
Subscribe to R-bloggers to receive
e-mails with the latest R posts.
(You will not see this message again.)

Click here to close (This popup will not appear again)