Understand how different assets move in relation to one another. A score of +1.00 means they move perfectly together, while a score of -1.00 means they move in opposite directions.
Values range from -1.00 to +1.00.
If your entire portfolio consists of coins with a correlation of +0.80 or higher, you are not actually diversified. A crash in one will likely result in a crash across your entire portfolio.
To properly hedge risk, look for assets with low or negative correlation to your largest holdings.
Bitcoin is the reserve asset of the cryptocurrency ecosystem. Most trading pairs are priced in BTC, meaning when Bitcoin moves drastically, it drags the entire market with it.
Yes. Assets can "decouple" during specific events. For example, if Ethereum has a major network upgrade, it might surge independently, temporarily lowering its correlation to Bitcoin.
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