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Single country ETFs demonstrate widely varying dependence on oil price. Canadian, Columbian, Norwegian and Russian ETFs are the most correlated to USO. Chinese and Indian ETFs are among the least correlated. In a recent article about primary beneficiaries of a potential oil price rebound, Zacks Funds identified Russia, Malaysia and UAE with their respective ETFs as the ones that could make a turnaround if the oil price makes a sustained move higher. This prompted me to look at a wider universe of single country ETFs and investigate their performance dependency on oil price. For this exercise I compiled a list of 45 US listed single country ETFs. All of the funds are market cap weighted and I did my best to pick the ETFs with the highest assets under management (AUM) for each country. I then obtained correlation estimates with the United States Oil Fund ETF (NYSEARCA: USO ) using a free online tool InvestSpy. Below is a full results table, calculated utilizing 1 year of historical data: There are a few observations to be made from the correlation coefficients above: It turns out that the most correlated ETFs with the recent oil price movement were the iShares MSCI Canada ETF (NYSEARCA: EWC ), the Global X MSCI Colombia ETF (NYSEARCA: GXG ), the Global X MSCI Norway ETF (NYSEARCA: NORW ) and the Market Vectors Russia ETF (NYSEARCA: RSX ). Each of these four ETFs had a correlation coefficient above 0.50 with USO, which is a relatively high number in the cross-asset class dimension. This probably does not come as a big surprise given that all four economies are significant oil exporters as can be seen from the interactive map provided by The Economist. So in a search for country ETFs that could benefit from rising oil price, these would be the first options I would consider. Some of the countries that one would expect to find at the top of the list are not there. One part of the explanation is that there are a lot of major oil countries without an ETF targeting local stocks. This includes Saudi Arabia, Iran, Iraq, Venezuela and a number of African countries. However, some other key oil exporters like UAE, Qatar and Nigeria make appearance outside the top 10. I believe a big reason for this is the iShares MSCI UAE Capped ETF (NASDAQ: UAE ), the iShares MSCI Qatar Capped ETF (NASDAQ: QAT ) and the Global X Nigeria Index ETF (NYSEARCA: NGE ) were launched only 1-2 years ago and have seen only a limited interest from investors thus far. None of them has more than $50 million in AUM and liquidity is subpar, therefore prices can be stale, consequently pushing down the correlation with other securities. This is something investors should take into account before making an investment decision. Finally, I thought it would be interesting to take a closer look at the countries at the bottom of the list, i.e. the ones least correlated with oil price. It was somewhat unexpected to see China and India at the very bottom of the list. But both countries are net importers of oil, generally benefiting from lower oil prices, which pushes correlation coefficients for the iShares China Large-Cap ETF (NYSEARCA: FXI ) and the iShares MSCI India ETF (BATS: INDA ) against USO lower. For investors with a stronger view on oil outlook, this can be a differentiating factor when comparing developing countries as potential investments. If you have more observations from the correlations table in this article, feel free to share them in the comments to facilitate further discussion. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Share this article with a colleague Scalper1 News
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