Bitcoin's Decade-Low Correlation With S&P 500 Does Not Guarantee Loss Offsetting
Bitcoin's correlation with the S&P 500 has reached a decade-low, according to Bitwise's Market Compass report. The log-level correlation between Bitcoin and the S&P 500 was -0.62 as of September 7, indicating that their price paths moved further apart over time.
However, a closer look at the data reveals that this negative correlation does not necessarily mean that holding both assets will offset losses when stocks fall. In fact, Bitcoin and the S&P 500 still posted losses on many of the same trading dates.
CryptoSlate's analysis using FRED data found that over the 260-day period ending September 4, the correlation between percentage returns was +0.40, indicating that their gains and losses tended to move together.
Moreover, when equities fell, Bitcoin also fell on many occasions, with a decline of 1.03% on average across all 115 common dates when the S&P 500 dropped. During larger declines, Bitcoin's losses were even more consistent, averaging a 2.59% loss when the S&P 500 fell by over 1%.
The timing difference between Bitcoin and S&P 500 observations can also change the result substantially. Moving Bitcoin's observations back one calendar day changes the correlation to +0.14, while moving them forward changes it to +0.03.