A look at the Bitcoin [BTC] correlation score and its essence for investors

ambcrypto.com:

After dropping for months beforehand, the price of Bitcoin [BTC] has been increasing since the beginning of the year. Despite the significant price increase, it is yet to recover to the level that saw it reach $60,000.

Particularly following the Covid-19 outbreak, Bitcoin’s price has correlated with traditional assets. How does the BTC correlation score now stand, and what does it mean for cryptocurrency investments?

Read Bitcoin’s [BTC] Price Prediction 2023-24

When comparing the price of Bitcoin to another asset or basket of assets, the correlation score can be used to gauge the degree to which the two prices move in tandem.

To determine the correlation, we look at Bitcoin and the other asset’s price movements over time and see how closely they have tracked one another.

If the correlation score is -1, then the values of the two assets are perfectly uncorrelated with one another; if it’s zero, then there is no association between the prices of the two assets; and if it’s 1, then there is a perfect positive correlation between the prices of the two assets (meaning that the prices of the two assets move in the same direction).

To help diversify their holdings, investors can use the correlation score. Investing in several types of assets with low correlation helps mitigate risk.

However, it’s important to remember that correlation ratings can shift over time. This highlights the need for constant asset correlation monitoring and subsequent investing strategy adjustments.

Ecoinometric data shows that following the Covid-19 epidemic, Bitcoin’s correlation score changed significantly. Some types of investments were chosen for this study so that we could get a feel for the correlation score that is now available.

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