Digital Asset – Correlation
By Alexander Hanly
- Aug, 28, 2020
- Uncategorized
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Portfolio diversification is key throughout all phases of the economic life-cycle and should be continuously evaluated to ensure adequate coverage during times of uncertainty.
Digital assets, namely Bitcoin as detailed below, presents a strong vehicle to diversify a portfolio due to its low correlation to traditional asset classes.
Bitcoin’s intrinsic properties coupled with the recent broader market inflationary measures. Provides a strong platform for alternative assets to perform well.
Correlation (2/1/2012 – 12/31/2019)
| S&P 500 | U.S. Bonds | Bitcoin | Gold | U.S. Real Estate | Oil | Emerging Markets Currencies | |
|---|---|---|---|---|---|---|---|
| S&P 500 | – | -0.30 | 0.01 | -0.05 | 0.59 | 0.31 | 0.29 |
| U.S Bonds | -0.30 | – | 0.03 | 0.28 | 0.12 | -0.18 | 0.09 |
| Bitcoin | 0.01 | 0.03 | – | 0.03 | 0.04 | -0.05 | -0.01 |
| Gold | -0.05 | 0.28 | 0.03 | – | 0.07 | 0.08 | 0.30 |
| U.S. Real Estate | 0.59 | 0.12 | 0.04 | 0.07 | – | 0.12 | 0.27 |
| Oil | 0.31 | -0.18 | -0.05 | 0.08 | 0.12 | – | 0.23 |
| Emerging Markets Currencies | 0.29 | 0.09 | -0.01 | 0.30 | 0.27 | 0.23 | – |
Candice Bangsund, vice president and portfolio manager at Fiera Capital, said:
“This more relaxed view on inflation will reinforce the notion that rates will remain pinned at these rock-bottom levels for an extended time – which will be instrumental in guiding the economy back to health and acting as a key source of support for risky assets in general.
Indeed, the subsequent output gap and the elevated level of unemployment stemming from the economic stop in March and April will keep inflation pinned lower and allow central banks to pursue extremely accommodative monetary policies for the foreseeable future, with the end result being a strong, above-trend growth cycle that will follow for the next several years as the central bank focusses on closing that gap in the economy.
In this lucrative environment, it is likely that equities will make new highs over that timeframe.”
