Cryptocurrency Correlation Study

Correlation Tool – Show Correlation Over The Last…

BTCETHXRPLTCXMRGOLDSP500DOW
BTC1
ETH0.761
XRP0.630.771
LTC0.840.730.691
XMR0.650.640.590.611
GOLD0.510.440.420.550.431
SP5000.390.280.290.270.350.251
DOW0.350.240.250.190.280.170.931

This is an interactive tool. You can click on the values in the table to see the trend or change the timeframe above the table.

Correlation over time: SP500 vs. BTC (Rolling 90 days)

Is Bitcoin An “Uncorrelated Asset”?

  • We investigated the correlation between the returns of some Cryptocurrencies, gold and big stock indices (S&P 500 and Dow Jones).
  • The Pearson correlation coefficient shows the extend to which two data sets (in this case: daily returns) are related.
  • It takes values between -1 and 1:
    1positive correlation (if one goes up, the other one goes up as well)
    0not correlated
    -1negative correlation (if one goes up, the other one goes down)

Key Takeaways

  • Gold is not correlated with any of the other data sets including Bitcoin
  • Cryptocurrencies amongst each other are positively correlated
  • Bitcoin and the S&P 500 showed no correlation until the Coronacrisis hit both stocks and Bitcoin hard, resulting in a growing correlation. With a coefficient of about 0.4 over the last 180 days, it is still very weak.

Is Bitcoin An “Uncorrelated Asset”?

Some bitcoiners like to say “Bitcoin is an uncorrelated asset”, implying that its price movement is completely decoupled from the price movement of other asset classes. Investing in combinations of uncorrelated assets can reduce the overall risk in a portfolio and event boost the overall return. But is that really the case? With this tool, data is analyzed with the aim to back up or dismiss the claim.

The Pearson Correlation Coefficient

The Pearson correlation coefficient is a beneficial mechanism to measure this correlation and assess the strength of a linear relationship between two data sets. It takes values between -1 and 1. -1 is a strong negative correlation, 0 implies no correlation at all (uncorrelated) and +1 stands for a strong positive correlation.

Looking at this study, a coefficient of 1 essentially equates: if one asset goes up, the one we are comparing it to tends to go up, as well. This also happens vice versa. A good example for a coefficient of almost 1 is the comparison between the S&P 500 and the Dow Jones stock index. Both track the performance of blue-chip stocks. Consequently, it comes as no surprise that the correlation chart for S&P vs. Dow Jones looks like the following:

Cryptocurrency vs. Cryptocurrency

How do cryptocurrencies correlate with each other?

In order to have sufficient data at hand, we took 5 coins with a long price history into consideration. They display a strong positive correlation. This is no news to anyone who followed the market over the last couple of years.

It is, however, noteworthy that this has not always been the case.

Bitcoin vs. Ethereum

Assessing the development of the correlation coefficient between BTC and ETH since 2016 with a 180-day rolling window, the analysis returns something like this:

We started with almost no correlation. There were times in between when it seemed like they moved uncorrelated. But the trend clearly indicates a growing relationship between Bitcoin and Ethereum.

Bitcoin vs. Gold

There is no correlation whatsoever between the price movements of Gold and Bitcoin.

Bitcoin vs. Stocks

Not taking the recent Corona-induced crash into account, it is evident that the Bitcoin price movement is equally uncorrelated with the stock market. Even though Bitcoin and the S&P 500 both took a hit in March 2020, resulting in a growing correlation, it is still relatively weak.

If we disregard these short term trends and look at the 2-year rolling window since 2016 the BTC / S&P 500 coefficient it looks like follows.

Bitcoin and stocks are completely uncorrelated! Incidentally, the chart for ETH vs. S&P 500 looks the same.

Gold vs. Stocks

We find the same case again: there is no correlation to be found.

Conclusion & Disclaimer

  • Based on the data it becomes obvious that Bitcoin is an uncorrelated asset as gold is.
  • So are all other cryptocurrencies, except among themselves.
  • Being an “uncorrelated asset” does not mean that Bitcoin must go up if stocks go down. That would constitute a negative correlation.
  • Prices which are moving in the same direction for a couple of days are not indicators for an existing positive correlation. In order to get significant results, longer timeframes need to be assessed.
  • Here, the statistical significance of all the correlation coefficients was not calculated. Nonetheless, the stronger ones are significant with an α = 0,05 significance level and N > 90 days.
  • These insights are not investment advice!
  • Thank you to @keledoro for helping with the calculation.

Über Holger
Follow me on Twitter: @rohmeo_de     Permabull - Tweets mostly crypto charts & data porn (aka. Bitcoin Rainbow Rainbow Chart guy) - Sockpuppet for @blockchaincent - Co-Host KONSENS & NONSENS Podcast

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6 Kommentare zu Cryptocurrency Correlation Study

  1. Sehr guter Überblicken, danke Holger

  2. Nice work, could you add Bitcoin Cash?

  3. Great work, super usefull information. Thanks for sharing
    Since you are really into correlation also check this https://coinmetrics.io/correlation-charts/

  4. Can I write a scientific paper based on your analysis?

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