Historical Correlation
Overview
The historical correlation indicator tracks the correlation coefficient of the price of crypto and traditional assets over time.
Recall that a correlation coefficient close to 1 implies a strong positive correlation between the two prices, a correlation near 0 suggests no correlation and a correlation close to -1 points to a strong negative correlation (meaning that the price of Bitcoin and the asset in question tend to move in opposite directions).
💡 How can I use it?
The historical correlation between crypto and traditional assets is important to track to understand how macro markets affect crypto, and how their relationships evolve.
For instance, in March 2020 we observe a very high correlation between Bitcoin and most indices as panic surrounding the Covid-19 pandemic crashed markets altogether.
Over the long-term, though, we have observed Bitcoin remain relatively uncorrelated to traditional assets, suggesting it could serve to diversify portfolios and even potentially hedge them.
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