To reduce the risk and find weakly interconnected cryptocurrencies, it is necessary to evaluate the cryptocurrency portfolio using the crypto correlation matrix.
Correlation can take values from +1 (positive) to -1 (negative).
A correlation of +1 means that the assets are moving in the same direction, if one grows by + 7%, then the second grows by + 7%, however, if one of the assets falls, the second doubles the fall, since the correlation is positive +1.
A correlation of 0 means that there is no relationship between assets.
A negative correlation of -1 means that prices move in the opposite direction.
Thus, negative correlation portfolios have a low risk, in contrast to positive correlation portfolios that have a high risk.
However, in reality, creating a portfolio with a correlation of -1 consisting of cryptocurrencies is quite difficult or almost impossible. Therefore, a weak positive correlation may be an acceptable result.
Analyze the portfolio with crypto correlation matrix.
Holderlab.io can analyze your crypto portfolio using the correlation matrix for free.
If you have already connected your exchange account using the API keys, go to the section of the correlation matrix.
- Next, select the assets or click on the “Load Portfolio” button if you already have saved crypto portfolios.
- After selecting assets or loading a portfolio, select the period of interest for analysis, for example 3 month, 6 month, 1 year, 2 year. It is important to take into account that correlation for short periods can vary greatly.
- To display and analyze the crypto correlation matrix, click the “Launch” button.
Correlation Matrix Analysis
Now you can see your correlation matrix graph and analyze it. At the top, you can see that color adjustments depend on correlation indicators starting from -1 (high negative – purple) to +1 (high positive – red).
Then you can see the degree of correlation of each crypto assets, and you can switch between correlated and uncorrelated assets.
This article is not a recommendation for investment or investment in cryptocurrencies, as well as perceived as investment advice. Be careful, because investing in cryptocurrencies is very risky and you need to consult with your financial advisor. Past earnings do not guarantee future earnings.
Holderlab.io is a fully automated cryptocurrency portfolio management laboratory. Analysis of the cryptocurrencies correlation, searching for the optimal cryptocurrency portfolio weights. Uses crypto trading bots and the auto efficient crypto portfolio index.
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