Trader View - May 4, 2018

OSL-COL-04MAY18-CORRELATION

Late one to wind down the week. wanted to leave your with thoughts from my colleague Chris Bender. Chris joins us from Societe Generale where he traded exotic equities. Our resident expert on derivatives preaches it. 
may trend be your friend… TGIF!

 

Here is a study of volatility & correlation of Bitcoin & Ethereum since end 2016.

Might be useful for some of you, either for talks, pitches, etc…

Also the volatility results will be necessary for options pricing.

 

Chart 1 : 30-days & 90-days volatility of Bitcoin & Ethereum

Comment :

During 2017, vol of ETH was much higher than vol of BTC.

This might be due to the relative youth of ETH, Bitcoin being already more mature at that time.

Since end 2017, levels are similar and currently in a range [80%-110%]

Chart 2 & Chart 3 : focus on BTC or ETH, with spot level on same chart

Comment for BTC :

Since end May 2017, we could observe a vol peak around 150%, floor around 65%

Still there were times earlier when 30-days vol bottomed at 40% before quickly rebounding.

Currently around 85%.


Chart 4 : Correlation spot & volatility for BTC & ETH

Comment :

Very unstable, meaning that avol and spot don’t always move in the same direction.

When looking at these results with charts 2 & 3, it’s easy to conclude that a high volatility doesn’t necessarily imply a bear market of BTC/ETH. More generally, it seems hard to base strategies on that, at least for now. (in equity markets, volatility tends to increase when market is bearish)

Chart 5 : Correlation BTC/ETH and Beta for ETH (relatively to BTC)

Comment :

Unstable, even though highly correlated since mid-feb 2018.

–> beta in a range [0.65/1.1] recently, meaning that even though BTC & ETH seem to move in the same direction, their moves are not with the same intensity (move of ETH = [0.65-1.1] * move of BTC), which may lead to a mis-hedge when having a long/short BTC/ETH in our positions.

Let me know if you have any question.

If you think of other studies, feel free to suggest.

SJ Oh
Trader
Vice President
[email protected]

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