Join        Login             Stock Quote

1-Year Analysis Of Coal Price vs. Energy Commodity Funds

 January 22, 2009 02:52 PM

The above chart (click to enlarge) depicts a one-year analysis of near-month Central Appalachian Coal Futures Contract Prices (NYMEX: QL), the Market Vectors Coal Company ETF (KOL), the U.S. Oil Fund (USO), the U.S. Natural Gas Fund (UNG), and the S&P 500 SPDR ETF (SPY). QL fared the best with a minor decline of 0.3%, compared to major losses of 61.4% for KOL, 58% for USO, 49.1% for UNG, and 34.7% for SPY. The chart was constructed using the daily closing prices for each component.

The prices for coal futures from other areas of the world were excluded in the chart analysis to avoid congestion from too many data points and since the correlation is high (around 95%) to QL. The table below illustrates the high correlation of global coal prices and low correlation of about 64% for Central Appalachian coal prices and KOL over the past year.

KOL illustrates a much higher correlation to the overall market (SPY) of about 92% versus a low correlation for the price of coal to SPY at just 45%. USO and UNG also demonstrate high correlations to SPY of 86% and 83%, respectively. Below are the details for the futures contracts analyzed in the correlation matrix as a proxy for the global price of coal, representing the major global exporters of coal.

1.) United States: NYMEX Central Appalachian Coal Futures (QL)

2.) Europe: Intercontinental Exchange (ICE) Futures Rotterdam (ATW)

3.) South Africa: ICE Futures Richards Bay (AFR)

USO and UNG demonstrated correlation of about 90% while QL was much more correlated to USO (78%) as compared to UNG (56%). However, KOL demonstrated a high correlation of over 92% each for UNG, USO, and SPY. The following factors warrant development of a new exchange-traded commodity product to track either the global or U.S. price (or both) of coal:

1.) the low correlation of coal prices to the overall market and other energy commodities

2.) the importance of coal in the global energy markets and power generation

3.) the lack of a exchange-traded product for coal prices

4.) the low correlation of the coal stock ETF (KOL) to coal prices

Such a CoalFund could be developed as a new investment vehicle to provide investors with exposure to the performance of near-month futures contracts for the global price of coal from the major coal producing and exporting regions in the world, the United States, or both. In addition the U.S., Europe, and South African coal futures contracts outlined above; a new product recently began trading as proxy for Australian coal futures on the Intercontinental Exchange (ICE) – the ICE Futures globalCOAL Newcastle Coal Futures Contract.
iOnTheMarket Premium


Comments Closed

rss feed

Latest Stories

article imageInitial Jobless Claims Rose Unexpectedly

Claims unexpectedly rose in the latest report through last weekend to breach 300,000 for the first time read on...

article imageAll Quiet on the Record High Front

What can we glean from the media’s lack of attention to the market’s recent record read on...

article imageThe Chip Maker Short Sellers Should Be Watching

Investing in semiconductor stocks is always tricky. Industry cycles can lead to bumps in the road for the read on...

article imageChicago Fed: US Economic Growth Slowed In October

The pace of US growth slowed more than expected in October, according to this morning’s update of the read on...

Popular Articles

Daily Sector Scan
Partner Center

Fundamental data is provided by Zacks Investment Research, and Commentary, news and Press Releases provided by YellowBrix and Quotemedia.
All information provided "as is" for informational purposes only, not intended for trading purposes or advice. iStockAnalyst.com is not an investment adviser and does not provide, endorse or review any information or data contained herein.
The blog articles are opinions by respective blogger. By using this site you are agreeing to terms and conditions posted on respective bloggers' website.
The postings/comments on the site may or may not be from reliable sources. Neither iStockAnalyst nor any of its independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. You are solely responsible for the investment decisions made by you and the consequences resulting therefrom. By accessing the iStockAnalyst.com site, you agree not to redistribute the information found therein.
The sector scan is based on 15-30 minutes delayed data. The Pattern scan is based on EOD data.