Market correlation assessment of the cryptocurrency: guidelines
The world of cryptocurrencies has developed rapidly, and the favorites of new markets and the old win in popularity. As a result, investors who try to diversify their portfolio or to participate in arbitration strategies in this article are provided by the concept of market correlation, its importance on the cryptocurrency market and a framework for the assessment.
What is market correlation?
The market correlation refers to the degree of price change between two or more properties. It measures exactly how your prices are usually shifted to changes in the price of a property. In other words, market correlation defines the extent to which different cryptocurrencies are connected and influence the performance of the other.
Why is market correlation important?
The market correlation has many advantages for investors:
- Risk management : If you understand how different means are correlated, you can identify the potential risks and possibilities of your portfolio.
- Diversification
: Cryptic currencies with high market correlation can be more attractive for diversification, as they tend to move with other funds.
- Referee : Market correlation facilitates arbitrary strategies and enables dealers to benefit from the price differences of funds.
How to rate the market correlation in cryptocurrency
To evaluate the market correlation, you can use the following methods:
- Regression analysis : This includes the calculation of the linear regression equation, which moderates the ratio between two or more cryptocurrencies over time.
- Correlation coefficient (R-Square) : Measure the strength and direction of the linear relationship between the price change between two assets.
Tools for evaluating the market correlation
Some popular tools for evaluating the market correlation are:
- QuantConnect : Python-based programming language for the development of quantitative models, including the correlation analysis of the encryption currency.
- Quantopian : A platform with which users can create and test commercial strategies with various algorithms and information sources, including market information for encryption currency.
- TradingView : A card platform that offers access to real market information, including cryptocurrency prices.
to calculate the market correlation
To calculate the correlation coefficient (R-Square), you can use the following formula:
R square = 1 – (SSE / ses)
If SSE is the sum of the square errors and SEs, the sum of the square errors is the sum.
For example, if we accept two cryptocurrency prices, X and Y, daily returns within six months, we can calculate your R-Squares as follows:
R square = 1 – ([6) ² + (8.5) ²] / [(1.3) ² + (7.9) ²))
= 1 – (40.24 + 75.25) / (1.69 + 62.41)
= 1 – 115.49 / 64.09
≈ 0.73
This relates to a moderate level of correlation between two cryptocurrencies.
Diploma
The assessment of the market correlation in cryptocurrencies is of essential importance for investors who maximize the return and minimize the risk. With the regression analysis, the R -Quared coefficient and other tools, you can evaluate the relationship between the transitions of various encryption technology prices. This understanding helps you to determine the chances of diversification, arbitraasist strategies and conscious investment decisions.
recommendations
- Your versatile portfolio : Apply your investments to many cryptocurrencies to minimize the risk.
- Follow the market direction : Keep an eye on the development of the cryptocurrency market and adapt your strategy accordingly.
- Stay up to date : Update your knowledge of market correlations, algorithms and trade strategies continuously.