MetenaCrypto correlation: definition, reading, example
A measure, between −1 and 1, of how far two assets tend to move in the same direction.
Definition
The correlation coefficient compares the moves of two assets over a period. At 1, they rise and fall together. At 0, their moves are unrelated. At −1, they move in opposite directions.
A correlation varies with the period measured and with the market regime. Under stress, correlations between cryptos move closer to 1. A correlation calculated over a calm period therefore overstates the protection a portfolio offers.
It says nothing about the size of the moves. Two assets can be correlated at 0.9 while one moves three times as much as the other. The size is read in volatility and in beta.
Worked example
Over 90 days, a correlation of 0.85 between ether and bitcoin means the two moved in the same direction the great majority of the time. Adding ether to a bitcoin portfolio then diversifies very little.
In Metena
Metena calculates the correlation between your positions and their beta relative to bitcoin. The diagnostic also examines the correlation of your portfolio with traditional markets, in the Macro pillar.
Notify me at launchRelated terms
- Diversification
- Spreading your capital across assets that do not react in the same way, so that a single decline does not take the whole portfolio with it.
- Volatility
- The size of an asset’s price swings. High volatility means large moves, up as well as down.
- BTC dominance
- Bitcoin’s share of the total crypto market capitalization. When it rises, it is often at the expense of other cryptocurrencies.
- Sharpe ratio
- Return relative to the volatility endured. The higher it is, the more the return was earned with moderate turbulence.
Put these ideas into practice.
Write your strategy in a few minutes: Metena analyses it when you ask and explains each term in context.
Notify me at launchEducational content. It is not investment advice. Crypto-assets carry a high risk that can go as far as the total loss of capital.