Deciphering digital assets exchange-traded funds: correlations, contradictions, and systematic influences

Abstract This study compares the performance of exchange-traded funds focused on digital assets (DETFs) with that of US and global equities. It examines correlations, returns, and risk-adjusted performance across various market conditions. Our analysis reveals that DETFs closely track the Standard and Poor (S&P) Cryptocurrency Broad Digital Assets Index. Additionally, there is a notable positive correlation between average monthly returns of DETFs and both US and global stocks. While DETFs outperformed global equities in terms of risk-adjusted returns, they did not surpass US equities in this regard. The findings also indicate that the risk-adjusted returns of these ETFs are significantly influenced by the S&P Cryptocurrency Broad Digital Assets Index. During the COVID-19 lockdowns—a period marked by heightened uncertainty—DETFs outperformed US and global equities in both monthly returns and risk-adjusted returns.