The correlation between foreign stocks and crude oil is at multi-year lows. This could offer some opportunities for international equity investors.
The correlation between international equities and crude oil is back at multi-year lows. We examined the correlation in monthly returns between the iShares ACWI ex-US ETF ACWX and Crude Oil Continuous CL/ using data from 12/31/1987 through 6/20/2025. Based on the data at this point through June, that correlation is set to drop to -0.0196, the lowest reading since March 2006. That could change before the end of the month given the increased volatility in oil prices over the past week. We got very close to negative territory at the end of last year, as the correlation dropped to 0.0009, not quite enough. Even if we tick back above 0 over the next week, the directional trend of the correlation would remain the same. Crude oil prices are the least entangled with foreign stock prices as we have seen in almost two decades.
It is rare to see this correlation move into negative territory, but not unprecedented. The calculation began below 0 back in 1990 and remained below that breaking point until the beginning of 1994. There was then a four month stint from 1998 to 1999 that saw a sub-0 reading, a couple months in 2003, then mid-2004 to early 2006. Those all add up to 67 months out of the past 35 years that the trailing 36-month correlation between ACWX and CL/ has been below 0. On the other hand, we have gotten used to notably higher correlations over the past 15 years. The highest correlation came in March 2020 at 0.7595. We also saw a prolonged stretch at or above 0.6 from 2008 to 2014.
Major spikes in the correlation do seem to coincide with weakness in global equity markets. This occurred in 2001, 2008, and early 2020. The correlation calculation is inherently a trailing “indicator,” if you can even call it that, since it looks at the last three years of monthly price action. So, it is tough to use these reading as a predictor of what to expect moving forward. With that said, it can help offer perspective on how global prices were interacting in different market regimes.
The last time we saw a sustained decline in this correlation that resulted in it moving below 0 came during a particularly bullish market for international equities from 2002 to 2005. From March 2002 to September 2005, ACWX gained 46% while the S&P 500 Index SPX gained just 7%. Meanwhile, crude oil jumped more than 150% as the US went to war in the Middle East.
Things could work out differently this time. The constant flow of information influencing price action in real time makes this time different. The geopolitical landscape is different. The oil production landscape is drastically different, as the US is now a net exporter of the commodity. I still think this graph is helpful as it shows the shifting relationship between foreign stocks and the most important global commodity.
The past few weeks have seen inconsistent appreciation for crude oil, as CL/ has advanced from a May low of $56 to a current level in the upper 60s at the time of this writing Monday afternoon. International equities have pulled back from multi-year or all-time highs, but they were also generally overextended from a strong start to the year. This could offer some buying opportunities as we head into the second half of 2025.
Even though the broader international equity space shows essentially no correlation to crude oil, there is more variation among the individual country and regional representatives. The table below shows the rankings of our World ETF Matrix alongside the trailing 36-month correlation of each fund against Crude Oil (CL/) (through 6/20). This matrix includes 46 global equity representatives, including broad funds, some US funds, and most individual countries with active equity markets. As can be seen in the table, there is not a clear delineation of correlation groupings in the top or bottom ranks of the matrix. The Global X MSCI Colombia ETF COLO is the most positively correlated with crude, though just at 0.2009. That fund has shown notable improvement and sits at multi-year highs. Switzerland (EWL), Chile (ECH), New Zealand (ENZL) and Japan (JPXN & EWJ) are all among the most negatively correlated.
The most recognizable point is that there are not many funds with strong correlations to crude oil, either positive or negative. The names toward the top of the rankings do generally show more muted readings than those toward the bottom. So, those looking for international equity ideas can feel comfortable focusing on areas with high relative strength without as much concern over the direction of oil prices.
