The relationship between oil and stocks has shifted—but is it permanent?

No one knows. In fact, it might actually be good news.

This is illustrated in the accompanying chart, which plots the correlation coefficient for the relationship between stocks and crude oil over the trailing 60 months. If the two were perfectly correlated, with oil and stocks rising and falling in perfect lockstep, that coefficient would be plus 1. It would be minus one if the correlation were perfectly inverse, with stocks rising when oil falls, and vice versa. A coefficient of zero would mean there is no detectable relationship one way or the other.

Investors are wrong to shrug off the economic impact of rising oil price.

Do Declining Oil Prices Signal a Problem for Stocks?

The financial crisis, and stocks’ relationship to oil changed. Now it was the case that a rising oil price was more often than not good for stocks—just the opposite of the situation that prevailed prior.

This is illustrated in the accompanying chart, which plots the correlation coefficient for the relationship between stocks and crude oil over the trailing 60 months. If the two were perfectly correlated, with oil and stocks rising and falling in perfect lockstep, that coefficient would be plus 1. It would be minus one if the correlation were perfectly inverse, with stocks rising when oil falls, and vice versa. A coefficient of zero would mean there is no detectable relationship one way or the other.