Henry K. Elder is the Director Investment Strategies at Wave Financial, a Los Angeles and London based investment management company that provides institutional digital asset fund products. Ryan Anderson, Associate, Wave Financial.
As both traditional and alternative asset markets descend into turmoil this month, it’s important to remember the inherent strengths of a diversified portfolio. A market rout always causes correlation to go to 1 across virtually all assets as investors flee to the perceived safety of cash. This can give rise to unfounded narratives based on extremely narrow datasets as investors panic and question sound investment principles. The market always comes back.
These short-term correlations are not as important to portfolio structure as studying the way an asset reacts across a range of economic environments. For that reason, we’ve isolated our research on each market period. First, we explore the nature of historical correlations between cryptocurrencies and traditional assets, preceding the recent panic. Later on, we will dissect bitcoin’s behavior during the recent flight to safety.
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Author: Henry K. Elder