The Analysis of Multifractal Cross-Correlation Connectedness Between Bitcoin and the Stock Market

Abstract

In this study, we examine the multifractal cross-correlation relationships between stock and cryptocurrency markets. The measures of complexity which can serve as indicators (indicators-precursors) in both markets are retrieved from Multifractal Detrended Cross-Correlation Analysis. On the example of the S&P 500 and HSI stock indices that are used most by investors to gauge the status of the economy in the world, and the cryptocurrency Bitcoin, which mostly determines the existence of the crypto market, we assess the variation of multifractality and correlations in both markets. Using the sliding window approach, we localize their dynamics across time and indicate a high degree of non-linearity with dominant antipersistency during crash periods for each index. The existence of periods with high and low crosscorrelations for stock and crypto markets provides prospects for reliable trading with several pairs of assets and effective diversification of their risks.