Market Insider

What US and Chinese stocks have in common

Trader on the floor of the New York Stock Exchange.
Brendan McDermid | Reuters

Plunging oil prices and China's market meltdown have been cited as two big culprits behind market volatility this summer, but history shows less correlation between these markets and U.S. stocks than many investors might expect.

In the case of Shanghai stocks, the has been very loosely correlated, but in the last several sessions the two have moved slightly closer together, according to RBC Capital Markets data. Oil prices and other commodities may be falling because of concerns about China's economy, but oil has only a tiny correlation to China's Shanghai index, according to analytics firm Kensho. Where 1 is the perfect positive correlation, Brent crude's correlation to the Shanghai composite is just around 0.1 over the last year.

Oil's moves are much more closely tied to the U.S. stock market, and even though it may feel like stocks react to every move in crude lately, the correlation of the S&P 500 with Brent is about 0.42 over the last year, according to Kensho. Energy is a big industry, but the weight in the S&P 500 market cap is just 6.8 percent, and it contributes 4.9 percent of the earnings, according to RBC Capital Markets.