Leading correlated cryptocurrencies

So, what about investors who want to diversify their cryptocurrency portfolio with altcoins with negative correlation to Bitcoin to hedge their bets against its swings? Why negative correlation to Bitcoin is important A cursory glance at the markets often leads people to believe that Bitcoin and altcoins are heavily correlated. There are always exceptions, but generally, the correlation between Bitcoin and altcoin price is steady.

However, not all cryptocurrencies follow the same patterns as Bitcoin. This is important for cryptocurrency investors to know. If there are certain top altcoins with negative correlation to Bitcoin, that gives them a chance to gain maximum benefit from their crypto assets. The top five altcoins with negative correlation to Bitcoin DataLight recently carried out research on the top coins to find out which ones displayed the least correlation to Bitcoin over time.

Their findings revealed the top five altcoins with negative correlation to Bitcoin from April to March , and why that might be the case. Story continues 2. After a brief drop on 1st April, its price is actually going up with BTC right now. In theory, this should mean that, as equities reached a potential bottom in recent week, the digital currency should have done so as well. Unfortunately, it's not that simple, Morgan Stanley said. Equity strategist Sheena Shah noted that, unlike previous cycles, government stimulus and Federal Reserve monetary policy tightening have driven bitcoin prices up and down.

This is similar to what has been seen in equities, and it has contributed to the cryptocurrency's highest correlation to stocks on record over the past six month. Another contributing factor to this correlation has been increased institutional participation in the space.

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Because cryptocurrencies are relatively new, there are multiple competing narratives and theories about whether the technique of correlation is useful — either between cryptocurrencies or between crypto and other asset classes. Correlations Are a Useful Portfolio Diversification Tool in Traditional Finance In traditional markets, portfolio managers use asset class correlations to help determine an investment strategy.

A correlation coefficient greater than zero means a positive correlation, while a negative coefficient implies the opposite. Positive correlation is when two assets move up or down in price together, while negative correlation implies inverse movement. Cycling through assets based on their coefficients helps investors to balance their portfolios and try to maintain growth through economic cycles. For example, the prices of stocks and Treasury bonds T-bonds are inversely correlated, meaning that one goes up when the other goes down.

When consumers are spending and the economy is expanding, including stocks in a portfolio will likely help to ensure growth. During times of economic contraction, however, returns from stocks will likely decline because of decreased demand. Therefore, incorporating bonds in the same portfolio as stocks would likely generate returns in recessionary times. Investors can even exploit the absence of correlation between assets and economic indicators.

For example, gold has low to almost-no correlation with equity markets, and for this reason is generally referred to as a non-correlated asset. Investors often use gold and other non-correlated assets as a safe haven against economic turmoil. As such, price movements for cryptocurrencies have not always followed a predictable pattern and can swing with investor whims. The correlation theory works in part because it establishes a statistical relationship between different assets in an economy.

Not enough time has elapsed to establish predictable patterns of behavior between cryptocurrencies and traditional asset classes. Many cryptocurrencies also lack a clear enough use case in economics or financial accounting for many investors to develop a cogent thesis around them. The scarcity of publicly available data has further complicated their case and has led to cryptocurrencies being correlated to a wide range of assets, none of which have yet to be widely accepted by the investor class.

Correlations contribute to narratives that explain shifts in asset prices but sudden price swings for cryptocurrencies can lack cause-and-effect explanations. Venezuela is an economy with severe hyperinflation but there are no digital tracks or fund inflows to prove that Venezuelans are responsible for bumping up the price of bitcoin. Cryptocurrency prices are also said to be inversely correlated to stock prices, but the opposite has also been true. You might have expected this correlation to be higher, as both assets are considered a store of value, mainly when adverse market conditions occur.

The Dollar and Bonds Most cryptocurrencies are priced in U. If cryptocurrencies are quoted in dollars, then the online trading of that product is generally negatively correlated to the exchange rate of the U. Cryptocurrencies are also uncorrelated to bond prices. In some circumstances, bonds and the dollar become safe-haven assets and rise when stock prices fall. Are Cryptocurrencies Correlated to Each Other? Amongst cryptocurrencies such as Bitcoin, Ether, and Litecoin, the correlation of the online trading of these assets is on and off.

Bitcoin is usually the driver of the sector, but more recently, there has been more of a focus on how individual coins trade. For example, even as Bitcoin fell in , Ether prices rose to new heights. When they first begin to experience online trading, many other smaller coins may have movements that are not correlated to the sector as a whole. The Bottom Line Cryptocurrencies are an asset class generally used as a store of value.

While you can use cryptocurrencies to pay for goods and services, many investors use cryptocurrencies to diversify their portfolios. Some traders consider using cryptocurrencies because they historically are uncorrelated to the movements of stocks and bonds.

Correlation is a statistical term that describes whether returns of one asset move in tandem with the returns of other investments. A correlation of 1 means perfect correlation, while a correlation coefficient of -1 implies that the two assets move in the opposite direction. A correlation of zero means that two assets have no observable movements in common. Historically, cryptocurrency has had a small correlation to stocks, bonds, and gold.

The correlation seemed to pick up in January , when adverse market conditions started to push stocks lower. Owning an asset that is uncorrelated to the movements of your portfolio should protect you when volatility rises, and market conditions increase to levels that create wild swings in the returns of your portfolio. By owning cryptocurrencies or other uncorrelated assets, you may protect yourself from one-directional movements in your investments.

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Gold has been used to allocate smooth returns when adverse market conditions occur. The correlation between gold prices and Bitcoin is likely smaller than you think. You might have expected this correlation to be higher, as both assets are considered a store of value, mainly when adverse market conditions occur. The Dollar and Bonds Most cryptocurrencies are priced in U.

If cryptocurrencies are quoted in dollars, then the online trading of that product is generally negatively correlated to the exchange rate of the U. Cryptocurrencies are also uncorrelated to bond prices. In some circumstances, bonds and the dollar become safe-haven assets and rise when stock prices fall. Are Cryptocurrencies Correlated to Each Other? Amongst cryptocurrencies such as Bitcoin, Ether, and Litecoin, the correlation of the online trading of these assets is on and off.

Bitcoin is usually the driver of the sector, but more recently, there has been more of a focus on how individual coins trade. For example, even as Bitcoin fell in , Ether prices rose to new heights. When they first begin to experience online trading, many other smaller coins may have movements that are not correlated to the sector as a whole. The Bottom Line Cryptocurrencies are an asset class generally used as a store of value.

While you can use cryptocurrencies to pay for goods and services, many investors use cryptocurrencies to diversify their portfolios. Some traders consider using cryptocurrencies because they historically are uncorrelated to the movements of stocks and bonds. Correlation is a statistical term that describes whether returns of one asset move in tandem with the returns of other investments. A correlation of 1 means perfect correlation, while a correlation coefficient of -1 implies that the two assets move in the opposite direction.

A correlation of zero means that two assets have no observable movements in common. Historically, cryptocurrency has had a small correlation to stocks, bonds, and gold. The correlation seemed to pick up in January , when adverse market conditions started to push stocks lower. Findings The study results indicate that blockchain-based technology companies' indices' return and price return of cryptocurrencies are positively correlated for most of the sampling period.

The results are also robust to various sensitivity analyses. It could also be due to the applicability of cryptocurrencies for these companies, as the price return of more advanced and capable cryptocurrencies with unique features has a positive correlation with the return of stock indices of blockchain-based technology companies for more days compared to the other cryptocurrencies, like Bitcoin, Litecoin and Ethereum, that may be regarded more as speculative assets.

Practical implications The study results may show the positive role of cryptocurrencies in improving and developing technology companies that mainly operate on the blockchain platform and provide financial services and vice versa, suggesting that managers and regulators should pay more attention to the usefulness of cryptocurrencies and blockchains.

This study also has important risk management and diversification implications for investors and companies investing in cryptocurrencies and these companies' stock.