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:

How to evaluate the correlation of the market in cryptocurrency

To evaluate the correlation of the market, you can use the following methods:

Tools to evaluate market correlation

Some popular tools to evaluate market correlation are:

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.

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