To understand the complex correlation of the cryptocurrency market
The cryptocurrency world is a complex and rapidly developing landscape, with many cryptocurrencies trading at various prices. One aspect that has received much attention in recent years is a correlation between different cryptocurrencies. In this article, we will delve into how to analyze the market connection between different cryptocurrencies by providing insights into factors that influence this relationship.
What is the correlation of the cryptocurrency market?
The correlation of the cryptocurrency market means the similarity or degree of the relationship between two or more cryptocurrency markets. When two or more assets are correlated, it means that their prices tend to move together in response to changes in the price of one property. This can be due to a variety of factors such as:
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- Market mood : The moods of the cryptocurrency market are influenced by various factors such as economic indicators, news and regulatory changes that can affect correlations.
Factors affecting market correlation
Several factors contribute to correlation between different cryptocurrencies:
- Liquidity : High liquidity assets usually attract more merchants and investors.
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- Regulatory Environment : Changes in the regulatory environment can affect cryptocurrency connection.
Market correlation analysis methods
There are several ways to analyze market correlation between different cryptocurrencies:
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- Autocorreal Function (ACF) and Partial Autocorreal Function (PACF) : These methods analyze time lines between different assets by investigating the function of autocorreal and partial autocorreal function.
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Example analysis
Let us consider the hypothetical analysis of the market correlation between Bitcoin (BTC) and Ethereum (ETH).
| Property | Price range Volatility
| — | — | — |
| BTC | $ 2500 – $ 3,000 | 20% – 30% |
| Eth | $ 150 – $ 200 | 50% – 60% |
Using the example above, we can calculate the correlation coefficient between BTC and ETH using the following formula:
MCC = (σ (x – x̄) (y – ȳ)) / SQRT (σ (x – x̄) ² \* σ (y – ȳ) ²)
where x and y are BTC and ETH, and x̄ and ȳ are their measure.
After calculating the correlation coefficient (0.95), we can interpret it as follows:
- The correlation coefficient, almost 1, indicates a strong positive relationship between BTC and ETH.
- The correlation coefficient of -1 shows a strong negative relationship between BTC and ETH.
- The correlation coefficient of less than or equal to 1 shows a weak positive connection, while the value of more than 1 indicates a weak negative connection.
Conclusion
The correlation of the cryptocurrency market is an essential aspect of understanding the complex world of cryptocurrency markets.