Correlation Between Oil and GCC Banks and Financial Services

West Texas Intermediate (WTI) Crude Oil price started plummeting from a high of US$107.95 in June 20, 2014 to a low of US$31.42 in Jan 11, 2016. Prices of US Banks and oil are becoming more coupled now due to US Banks’ exposure to energy companies; especially medium size companies and shale oil producers. This prompted writing this post in which I explore the correlation between the prices of crude oil and GCC Banks and Financial Services.

The matrix below shows the correlation between the prices of crude oil (using WTI as proxy to OPEC basket prices) and GCC Banks and Financial Services in the period from June 20, 2014 to Jan 11, 2016. This period was chosen specifically because it marks the beginning of the drop in crude oil prices.

Oil BFS Cor
Correlation between crude oil prices and GCC Banks and Financial Services

For readability, I have abbreviated the long sectors names; for example, TASI.BFS is the Banks & Financial Services sector. The full list of the sectors names and their abbreviations is listed at the end of this post.

Correlation is a number between -1 (negative correlation) and +1 (positive correlation). However, for readability, I used a scale between 1/-1 (weak positive/negative correlation) to 10/-10 (strong positive/negative correlation) to represent the magnitude of correlation.

Referring to the first column in the correlation matrix above, it is evident that the correlation between the prices of crude oil and GCC Banks and Financial Services is very weak; ranging from -1 to 0 to 1. Meaning, it seems that share prices of GCC Banks and Financial Services are not coupled to the prices of crude oil since the start of the drop in crude oil prices from a high of US$107.95 in June 20, 2014 to a low of US$31.42 in Jan 11, 2016. This of course does not rule out the possibility of an emerging correlation between the prices of crude oil and shares of GCC Banks and Financial Sectors.

Thank you.

GCC Banks and Financial Services Sectors Abbreviations

TASI.BFS Saudi Stock Exchange – Banks & Financial Services
DFM.BAN Dubai Financial Market – Banks
DFM.IFS Dubai Financial Market – Investment & Financial Services
ADX.BAN Abu Dhabi Securities Exchange – Banks
ADX.IFS Abu Dhabi Securities Exchange – Investment & Financial Services
KSE.BAN Kuwait Stock Exchange – Banks
KSE.FIS Kuwait Stock Exchange – Financial Services
BAH.CBN Bahrain Stock Exchange – Commercial Banks
MSM.BKI Muscat Securities Market – Banks and Investment
QE.BFS Qatar Exchange – Banks & Financial Services

 

Author: Thamir K. AlHashemi

Practitioner in the fields of quantitative finance and risk management. A lifetime learner. Reading is the only hobby that I haven't failed in ;)

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