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Sunday, September 25, 2005

Hedging Against Energy Prices, Part 2:Chevron Stock Performance vs Gas Prices

Earlier I took a look at my Exxon investment as a hedge against the rise of energy prices. The result was a very compelling argument for an investment in Exxon (XOM) to hedge against energy prices.

I have also made investments in Chevron (CVX) and I wanted to see how well it helped me hedge against the rise in energy prices.

Just like with the Exxon stock, lets compare Chevron stock price to the change in the price of gas. I'll use my estimated historical gas prices from the charts at raleighgasprices.com to track gas performance. I also took historical stock prices from Yahoo!Finance to pull the closing price of Chevron stock on the 1st trading day of each month.


The first thing that jumped out to me was the ROI was significantly greater as of August 2005, Exxon 83.97% vs Chevron 101.71%. However keep in mind this comparison is in regard to stock price only, dividends were not included in this analysis.

Also of note the Pearson Correlation in this analysis is 0.8745 which indicates there is a strong positive correlation in Chevron stock to local gas prices in this comparison (this is for illustrative purposes and doesn't necessarily indicate future correlation). This is compared to a Pearson Correlation of 0.8917 for Exxon stock for the same time period. Between the two stocks, Exxon appears to be slightly more correlated to local gas prices than Chevron, but not significantly.

Now lets see how my Chevron Dividend Reinvestment Plan (DRIP) account faired:

Chevron DRIP Account

Annual Investments

Based on 9/14/2005 Price

Year

Invested

Shares

Value

Profit

ROR

2001

$ 503.82

10.9888

$ 687.35

$ 183.53

9.11%

2002

$ 15.59

0.3952

$ 24.72

$ 9.13

19.52%

2003

$ 16.55

0.4542

$ 28.41

$ 11.86

35.83%

2004

$ 18.34

0.3778

$ 23.63

$ 5.29

28.85%

2005 (YTD)

$ 16.01

0.27149

$ 16.98

$ 0.97

6.07%

Total

$ 570.31

12.48749

$ 781.09

$ 210.78

19.88%


Notes: ROR=Rate of Return; ROR is calculated annually; *Averaged ROR; dividends reinvested are aggregated into yearly "Invested" column; actual ROR is higher because dividends paid are not calculated in ROR.

Surprisingly enough this analysis shows that my Chevron stock didn't fair as well as my Exxon stock. This could be explained by investment timing, but is at least partially attributed to the small amount of Chevron stock I purchased compared to the fees which are included in the 'Invested' column to open the DRIP and buy stock ($10 to open, $1 each purchase) where my Exxon DRIP had no account opening or purchase fees.

Based on this I believe my Exxon investment has had a better total return on investment. I think I will continue focus my future energy investments to Exxon stock.

In my next post I will discuss an idea I have for improving my hedging strategy with a modified dollar cost averaging technique.

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