
Robin Marshall, MA, M.Phil
Director, Global Investment Research

Alex Nae
Quantitative Research Analyst, Global Investment Research
Key takeaways:
- We find that the digital assets Bitcoin and Ethereum show variable correlation of return coefficients with traditional assets, but these increased sharply with risk-on assets, like equities, after the Covid and inflation shocks
- In addition, digital assets have shown high betas and volatility in response to macro shocks, and not yet developed stable store-of-value characteristics, like gold
- Caution is required in interpreting the results, given the short time series on which they are based. Correlations may change as the blockchain settles down and transitions to a more stable regime, and as investors become more comfortable with investment use cases and notions of fair, or equilibrium value
- This may contribute to lower volatility in digital assets over time, as the asset class matures
- On the basis of the correlations found, digital assets cannot be classified as either commodities or currencies, and may constitute a brand-new asset class
- Incorporating Bitcoin and Ethereum into a portfolio represents an opportunity for higher returns, but must be traded off against increased volatility, consistent with the principles of financial theory
Points of differentiation:
- The paper draws on FTSE Russell data across multiple asset classes to assess the correlation of returns with digital assets
- By extending the analysis to include selected digital assets, it complements our previous, 2024 paper on the correlation of multi-asset returns
- It also enables us to assess how far digital assets share key characteristics with traditional assets, i.e. as a store of value, or safe haven, or as risk-on/risk-off assets
What does our research mean for investors?
- The research enables investors to better inform their investment decisions about digital assets, drawing on the empirical evidence on correlations of returns from FTSE Russell / LSEG data
- By identifying how correlations of digital assets with other asset classes have evolved, during the macro-economic shocks of recent years, it helps asset allocators assess how digital assets may respond to future shocks
- Finally, the research suggests the tendency of financial assets to increase correlation, or co-movements, during negative market shocks, like Covid or the inflation shock that followed, may increase the appeal of digital assets for investors, given they show different performance characteristics