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A “Positive” Correlation between HYG & BTC


Correlation between HYG & BTC

In this highly correlated world, every action leads to an impactful reaction. With free trading and international consumerism in today's world, you have to watch your investments to mitigate your losses. But, at the same time, grab onto an opportunity before you miss the bus.


Over the last decade, a new digital financial market has evolved in the form of cryptocurrencies. As of 25th April 2022, the global market capitalization of cryptocurrencies is over $1.6 Trillion. The growth in the market capital shows the increasing popularity among retail and institutional investors, despite its high volatility.


Due to various government economy stimulations during the pandemic, crypto prices and the stock market increased amid the global economic conditions and high investor risk appetite.


Correlation between Bitcoin and HYG (High Yield Growth Fund)

The iShares iBoxx $ High Yield Corporate Bond ETF (HYG) is one of the widely used High Yield Bond ETFs. It has high exposure to a broad range of U.S high yield corporate bonds, attracting higher income from the investment.


A portfolio constructed using The Modern Portfolio Theory (MPT) assumes that asset allocation in a portfolio should consider the volatility of assets and their related correlations to mitigate its risk.


We are considering MPT to build a portfolio comprising various assets and Bitcoin. Correlation analysis shows BTC and other assets positively correlate with the traditional stock market indices. However, it was the strongest with HYG, which means that when HYG shows an increase, the Bitcoin increases too.


In fact, according to data tracked by Arcane Research, the correlation between BTC and S&P 500 rose to 0.49 last month. It is also the highest since October 2020.


As Bitcoin is a volatile asset, it is sometimes difficult to harness the volatility of the cryptocurrency, even for the most experienced traders. Therefore, the HYG can serve as an indicator in deciding the direction of the prices of Bitcoin.


Correlation alone is not enough.

Correlation between HYG and Bitcoin to make investment decisions is not enough, as other factors will come into play concerning the volatility in the crypto market. Furthermore, the market sentiment has also impacted crypto prices in the past. Therefore, it tells us that Crypto cannot be used as a hedge option to mitigate market risks.


As a trader, you cannot rely upon the correlation alone. 1Percent Trading Group will be your constant support and advisor to help you make an informed decision. With 1Percent Trading Group, you can be a part of the forum of experienced traders who will be able to help you make the most out of your capital.

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