Bitcoin and Ethereum Exhibit Low Correlation with Market

Correlation between BTC and ETH

According to data from IntoTheBlock, the correlation between BTC and ETH with traditional markets and commodities has recently been close to zero. “Correlation” here refers to the correlation coefficient (r) from statistics, which is a measurement that tracks the degree of connection between two quantities over a given period of time.

When the value of this coefficient is greater than zero for any two assets, it indicates that there exists a positive correlation between their prices, implying that the assets are moving in the same direction. Conversely, a negative value of the coefficient indicates that although there is some correlation, it is a negative correlation, as one asset reacts to movements in the other by moving accordingly opposite direction.

For coefficients close to zero, no relationship is identified between the assets, suggesting independence between them. In statistics, variables are said to be independent in this situation.

The table below plots the 30-day correlation between the top two cryptocurrencies by market capitalization, Bitcoin and Ethereum, compared to several traditional assets. Bitcoin and Ethereum appear to have a low correlation with these assets recently. Of these, these two coins have the highest correlation with the S&P 500, with coefficients standing at 0.4 for BTC and 0.49 for ETH.

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ETH is more highly correlated with the S&P 500

So this implies that ETH has a slightly higher correlation to the S&P 500 than BTC. As such, ETH also exhibits a more notable relationship with the other coins on the list than BTC, although there is still a lack of strong association with any of them.

The low correlation coefficient with traditional markets shows that cryptocurrencies have operated more independently in recent times. Overall, correlation can be an important factor when investors are looking to add an asset to their portfolio. Highly correlated assets can compensate for poor diversification, as they can track similar performance (positive coefficient) or counteract each other (negative coefficient).

Since Bitcoin and Ethereum do not have any solid connection to traditional markets and commodities, these two coins can be reasonable choices for traditional investors looking to expand their portfolios.