Dynamic Correlation Measurement Between Bitcoin, Crude Oil and Gold

Abstract

: As a financial asset, bitcoin has attracted the attention of many financial financial advisors and investors. This paper aims to analyze the dynamic correlation between bitcoin and two important financial assets, i.e., crude oil and gold. This paper selects weekly data from January 2014 to April 2022 and then uses the DCC-GARCH model to measure the dynamic correlation between bitcoin and crude oil, as well as bitcoin and gold assets. The empirical results show that: (1) Compared with gold and crude oil, bitcoin has the greatest risk, while gold has the least risk. However, crude oil proved a higher risk in the early period of the COVID-19 pandemic. (2) Bitcoin’s rate of return is negatively correlated with risk, while the return and risk of gold and crude oil do not show significant correlation. (3) The correlation between bitcoin and crude oil and between bitcoin and gold shows obvious volatility. We can find that the positive correlation between bitcoin and crude oil increased significantly in the early period of the COVID-19 pandemic, while the negative correlation between bitcoin and gold became more pronounced during that time period. These findings contribute a valuable resource for choosing tools for risk prevention and control, emergency hedging, etc.