Maximising Cryptocurrency Profits Using Correlation Matrix
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In the financial world, correlation is a statistical measure of how two securities move in relation to each other.
What is Correlation?
Correlation tells us whether two currency pairs move in the same, opposite, or totally random direction, over some period of time. Correlation is computed into what is known as the correlation coefficient, which ranges between -1 and +1.
- Perfect positive correlation (a correlation coefficient of +1) implies that the two currency pairs will move in the same direction 100% of the time.
- Perfect negative correlation (a correlation coefficient of -1) means that the two currency pairs will move in the opposite direction 100% of the time.
- If the correlation is 0, the movements between two pairs are said to have NO correlation, they are completely independent and random from each other.
How to maximize profits using correlation matrix in crypto?
IMPORTANT: Before using correlation matrix, you need to know BTC Dominance and Factors that affecting correlation. If you do not know what is BTC Dominance, read “Understanding BTC Dominance” and “3 Factors Affecting Cryptocurrency Correlation” first.
- Analyse Bitcoin, predict the move.
- Choose your coin (XYZ), look at the matrix, understand the XYZ coin’s move with Bitcoin
- If you think Bitcoin will increase or decrease, look at the recent moves.
- Identify the profit coefficient factor by looking BTC/USD and XYZ/USD pair together.
- Look BTC Dominance and Marketcap.
- Take position
Performance Example:
As you can see from the above, while bitcoin increased more than 25%, Cardano and EOS increased more than %40. Almost twice as much profit.
I hope this reading will help you to understand importance of Bitcoin Dominance and Correlation. Thank you…
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