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I've posted this chart a couple of times but worth repeating -- there was a clear regime shift in March 2020 where Bitcoin switched from uncorrelated with risk assets to positively correlated. The idea that it's diversifying is a mirage. https://twitter.com/justinaknope/status/1468209831328854021 …pic.twitter.com/7lhovAjURZ
There's some weak evidence that correlation is higher when equity volatility is high (all correlations and vol computed using intraday data, so each data point is a separate day and is independent from the others)pic.twitter.com/8OThyDDT0s
I guess might have gotten zero coz they were using 2010 to now
Yup that's my guess. My chart is supposed to back up your point btw -- especially that it has a higher left-tail correlation!
based on my extremely weak memory of finance theory don’t you still want to own “some” if it’s imperfectly correlated and has a positive expected return though? I guess whether it has a positive expected return is not fully clear
Yes to all of that.
Does it matter enormously what it does in times of stress if it's still significantly uncorrelated most of the time?
Especially if you expect it delivers higher returns ?
+ the second order effect that BTC -> alts are (relatively) orthogonal on the way up and correlated on the way down
It's just a very high beta risk play which has/used to have an asymmetric payout profile. No?
Obviously, investors should reduce their exposure to equities now that they provide less diversification to bitcoin. Why would you reduce exposure to the asset with 10x the returns?
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