Crypto Correlation

Crypto correlation is a measure of the relationship between the market price movement of cryptocurrencies and traditional finance assets or other crypto assets.

What Does Crypto Correlation Mean?

In the context of financial markets, correlation is a metric of the degree to which two different assets move compared to each other. Therefore, cryptocurrency correlation measures how much the price movement of cryptocurrencies and other assets like bonds, stocks, and commodities relate to or influence each other. These assets can either move together or against each other.

The statistical relationship between crypto and traditional finance (TradFi) assets gives investors insight into the nature of markets and how they react to each other. In other words, crypto correlation helps investors understand how the crypto market responds to economic events. It can also help them diversify their portfolios and manage associated investment risks.

What Are the Different Types of Crypto Correlation?

The exact measurement of the relationship between two assets is often expressed as a coefficient and ranges from -1 to +1 or negative 100% and positive 100%. As such, crypto correlation can be classified into positive correlation, negative correlation, or zero correlation.

• Positive correlation – A positive correlation occurs when the prices of both assets move together or in the same trajectory. This means that when one asset’s value rises, the other rises as well. A coefficient score of exactly +1 or 100% indicates a perfect positive crypto correlation. 
• Negative correlation – This refers to when the assets move in different or opposite directions, meaning that the value of one asset increases while the price of the other declines. A coefficient score of exactly -1 or -100% indicates a perfect negative crypto correlation, that is, the assets move by the same amount in value but in opposite directions.
• Zero or no correlation – A zero correlation means that the price movements of the two assets are completely independent of each other. Simply put, the price change in one asset does not influence or relate to the price change in the other in any discernible or consistent way.

Crypto correlation gives investors additional market data as they determine which assets they would like to invest in.