Correlation to bull/bear volatility
- Hedge Capital
- Apr 18, 2023
- 2 min read
Updated: Jul 18, 2023
Realized volatility provides a simple framework for reading past and assume future Alpha BTC portfolio performance with regards to Bitcoin market phases. Alpha BTC launched in mid Jan 23’ and the fund is therefore tracking live portfolio performance since Jan 23’. The first six months returns are between -3.8% to +3.4%, you may review this and performance metrics in the latest Alpha BTC factsheet. The results are well within a positively skewed return distribution of Alpha BTC that clusters the majority of returns around its distribution mean (60-70% of returns in -5% to +5% interval).
Since Jul 22’ the market’s volatility has been pushed to historic lows (see Low Vol period), with average RVOL index of 51 compared to its mean 63. As portfolio strategies live from options implied volatility (forward looking) and realized volatility (backward looking), basically neutral Alpha BTC portfolio results since Jul 22’ are somewhat logical outcomes of an extremely low volatility environment.
Source: Hedge Capital, ALPHA BTC return correlation to RVOL,
a proprietary 30-day rolling realized volatility index of daily OHLC price.
Though very simplified, realized volatility is a simple proxy to read past or expect future portfolio performance (RVOL index). Arguably, as long as it’s maintained above 60-65 points, the portfolio risk-adjusted returns (Sharpe ratio) are good irrespective of different market character and volatility dynamics. When volatility falls to very low levels, the strategies have little market inefficiencies to feed on and returns are more often within the -5% to +5% interval.
We’re now within a 12 months pre-halving period before 5/2024 halving, similar to the High Vol period before 5/2020 halving. For further detail, one may review a very good analysis from Glassnode on Bitcoin halvings and expected volatile environment leading up to the 2024 halving event.
