Correlations between crude oil and stocks prices of renewable energy and technology companies: A multiscale time-dependent analysis

Abstract

The study on the dynamic relationships between crude oil, stock prices of renewable energy and technology companies has aroused increasingly interest in the literature. This work novelly proposes the application of a time-dependent intrinsic correlation (TDIC) method to investigate the interconnection by quantitatively establishing its linkage between these three markets. TDIC is a Hilbert-Huang transform-based correlation tool in which the sliding window size for running correlation calculation can be adaptively adjusted by the instantaneous period of intrinsic mode function (IMFs) with characteristic scale. The time-varying associations between the West Texas Intermediate crude oil futures, the WilderHill Clean Energy Index and the NYSE Arca Technology Index are clarified and discussed in the short, medium and long-term. The findings show that the long-term (one year and above) correlation between pairwise markets is higher than the short-term (within one week) on average, which, in turn, is greater than the medium-term. A decreasing dependence of renewable energy on crude oil particularly after European debt crisis is detected. Besides, the relatively greater connection effects of negative changes than positive changes are revealed. These results are crucial for investors and policymakers to have flexible investment portfolio and risk management strategies in energy and financial markets.