Though cryptocurrency may be loosely correlated to the stock market, it's developed a tighter relationship with stocks that are either inflation plays or are speculative, according to Trivariate Research. Trivariate found the top 10% of 3,000 U.S. stocks had about a 0.25 correlation to a crypto basket during the three months, ending Nov. 2. The crypto basket was made up of bitcoin and ethereum . This suggests that there are no broad groups of equities trading in lockstep with cryptocurrencies. Bitcoin alone had a stunning move of more than 60% over three months, rising from $39,359 on Aug. 2, to close at $63,489 on Nov. 2, according to Coin Metrics. For comparison's sake, the S & P 500 closed at 4,387.16 on Aug. 2 and ended Nov. 2 at 4,630.65 — a move of more than 5%. "You can't really replicate crypto through equities," said Adam Parker, founder of Trivariate. He said he created a basket from crypto-related stocks, but it did not move in tandem with cryptocurrencies. "The stocks massively lag," he noted in a report. "The rolling correlation between a daily rebalanced basket of stocks and the crypto-basket is volatile, and hence, impractical." But when Trivariate compared its cryptocurrency basket against a proprietary stock market inflation basket and another basket of highly speculative stock plays, it was much more significantly correlated in recent months, Parker said. He notes there wasn't really a correlation between stocks and crypto prior to Covid. Parker said he has found that watching the relationship between stocks and crypto can be a risk management tool for now. "Through the lens of U.S. equities, this has become a proxy for speculation and inflation. That's worth monitoring as a signal," Parker said. Parker's inflation basket contains energy, materials and industrial names, like Schlumberger , Reliance Steel and Eastman Chemical. It also has financials including US Bancorp and KeyCorp . He said the stock market inflation trades can be seen in S & P sector moves. Since the start of November, stocks that were considered inflation plays, like materials, outperformed stocks that are not, like utilities. The Materials Select Sector SPDR ETF is up more than 5% in November. The Utilities Select Sector SPDR Fund is off 0.3%. Parker also examined his 3,000 stock universe to find names most and least correlated to crypto over the same three month period ending Nov. 2. Riot Blockchain was among the most correlated at 57%. But others that were not in the crypto business also had high correlations, potentially due to inflation-related or speculative trades. Other companies that were more than 50% correlated to crypto include packaging company Sealed Air , asset manager Cohen & Steers and payroll company Paychex . Software companies MicroStrategy and Marathon Digital Holdings were among the most highly correlated at 72.9% and 63.7% respectively.
Dado Ruvic | Reuters
Though cryptocurrency may be loosely correlated to the stock market, it's developed a tighter relationship with stocks that are either inflation plays or are speculative, according to Trivariate Research.