Analysis of Bitcoin and S&P 500 Correlation and Portfolio Risk

A historical analysis through September 4 reveals that a negative correlation between the price paths of Bitcoin and the S&P 500 does not necessarily indicate that the assets will offset one another during market declines. While Bitwise reported a 260-day log-level correlation of approximately −0.62, a separate calculation using percentage returns over the same period yielded a positive correlation of +0.40.

The discrepancy between these figures highlights that assets can drift in different directions over months while still experiencing losses on the same trading days. Because the calculations rely on asynchronous data—with Bitcoin prices recorded at 5 p.m. PST and S&P 500 prices at the 4 p.m. ET market close—the results are sensitive to the chosen lookback window and timestamp differences.

In a hypothetical portfolio, replacing 5% of an equity allocation with Bitcoin increased annualized volatility from 12.68% to 13.01% and raised the maximum drawdown from 9.10% to 9.98% over a 260-return window. However, these results reversed over a 500-return window, where the same allocation modestly reduced both volatility and maximum drawdown.

The data also shows that Bitcoin often declined alongside equities during market downturns. In the 260-return sample, the S&P 500 fell on 115 common dates; Bitcoin declined on 76 of those days, averaging a 1.03% loss. During the 25 instances where the S&P 500 fell more than 1%, Bitcoin declined on 22 occasions with an average loss of 2.59%.

Bitwise noted that its log-level calculation tracks medium-term movement in price paths rather than daily returns. The firm cautioned that historical decouplings between the assets are typically not permanent and that past performance, such as the rise between 2015 and 2017, is unlikely to repeat.