Evaluation of the correlation of the cryptocurrency market: guide
The world of cryptocurrencies has evolved quickly and the favorites of new markets and the old people are gaining popularity. Consequently, investors who try to diversify their wallet or participate in arbitration strategies in this article, we deepen the concept of market correlation, its importance in the cryptocurrency market and to provide a framework to evaluate it.
What is the market correlation?
The market correlation refers to the degree of variation of prices between two or more properties. It measures their prices as carefully are generally moved to variations in the price of a property. In other words, market correlation defines the measure in which the different cryptocurrencies are connected and influence mutual performance.
Why is market correlation important?
Market correlation has many advantages for investors:
- Risk management : By understanding how several funds are related, it is possible to identify the potential risks and opportunities of your wallet.
- diversification : cryptic currencies with high market correlation can be more attractive for diversification because they tend to move with other funds.
- Referees : the market correlation facilitates arbitrary strategies, allowing traders to benefit from the price differences of funds.
How to evaluate the correlation of the market in cryptocurrency
To evaluate the correlation of the market, you can use the following methods:
- Regression analysis : this includes the calculation of the linear regression equation, which moderates the relationship between two or more cryptocurrencies over time.
- Correlation coefficient (R-Quadrato) : measure the strength and direction of the linear relationship between the variation of the price between two activities.
Tools to evaluate market correlation
Some popular tools to evaluate market correlation are:
- Quantconnenct : Python -based programming language to develop quantitative models, including correlation analysis of the encryption currency.
- Quantopian : a platform that allows users to build and test trading strategies using various algorithms and sources of information, including information on the encryption currency market.
- Tradingview : a map platform that provides access to market information in real time, including cryptocurrency prices.
To calculate the market correlation
To calculate the correlation coefficient (r-quadrato), you can use the following formula:
R Square = 1 – (sse / ses)
If SSE is the sum of square errors and ses is the sum of standard lifestyle errors.
For example, if we take two cryptocurrency prices, xey, daily returns within six months, we can calculate their squares r 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 refers to a moderate correlation level between two cryptocurrencies.
Conclusion
The evaluation of market correlation in cryptocurrencies is essential for investors who try to maximize performance and minimize the risk. With the regression analysis, the coefficient of R -qualifica and other tools, it is possible to evaluate the relationship between the transitions of different prices of encryption technology. This understanding will help you identify the possibilities of diversification, arbitration strategies and conscious decisions of investment.
Advice
- Your versatile portfolio
: Apply your investments to many cryptocurrencies to minimize risk.
- Follow the management of the market : keep an eye on the development of the cryptocurrency market and regulate your strategy accordingly.
- Keep updated
: continuously update your knowledge of market correlations, algorithms and trading strategies.