Check out the correlation between oil prices and gaming stocks on the chart below. The correlation at -0.87 over the past year is almost as high as the cruise/oil correlation at -0.89. The relationship is hugely significant statistically with a T Stat of -27 and an R Square of 0.75. Basically, changes in oil explained 75% of the moves in gaming stocks over the past year.
It is all about oil, for now. I’m not sure it should be. At some point this negative correlation will weaken and probably turn positive again. As can be seen in the chart, up until the past year, the price of oil has moved in the same statistically significant direction as gaming stocks, both indicative of strong economic growth. When this correlation regresses to its mean what will these stocks trade on? Presumably, direct fundamentals will again be the driver. I’m not sure even oil at $80 solves the fundamental issues, particularly for Las Vegas.
Big reversal in the correlation coefficent beginning last year