The correlation strength of the most important cryptocurrencies in the bull and bear market

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The article explores the correlation strength of the ten most important cryptocurrencies, emphasizing the examination of differences during the periods of rising and falling prices. The daily and weekly returns of selected cryptocurrencies are taken as the basis for calculating and determining the correlation strength using the Pearson correlation coefficient. The survey covers the period from the beginning of 2017 to Bitcoin’s last local bottom in mid-March 2020. Research findings are as follows: 1) the most important cryptocurrencies are mostly moderately positively correlated with each other over time; 2) correlation strength decreases slightly during the bull period, but mostly remain in the range of moderate correlation; 3) correlation strength increases significantly during the bear period, with most cryptocurrencies strongly correlated with each other. The results do not change significantly if the daily or weekly cryptocurrency returns are used as the basis. A strong correlation in the period of falling prices prevents the effective diversification of the cryptocurrency portfolio, which must be considered when investing funds in the cryptocurrency market.

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    • Table 1. Pearson correlation coefficients between cryptocurrency pairs for the entire period (daily return)
    • Table 2. Pearson correlation coefficients between cryptocurrency pairs for the period of increasing prices (daily return)
    • Table 3. Pearson correlation coefficients between cryptocurrency pairs for the period of decreasing prices (daily return)
    • Table 4. Difference in value of correlation coefficients between the periods of increasing and decreasing prices (daily return)
    • Table 5. Pearson correlation coefficients between cryptocurrency pairs for the entire period (weekly return)
    • Table 5. (cont.) Pearson correlation coefficients between cryptocurrency pairs for the entire period (weekly return)
    • Table 6. Difference in value of correlation coefficients for the entire period, using daily and weekly returns
    • Table 7. Difference in value of correlation coefficients between the periods of increasing and decreasing prices (weekly return)
    • Conceptualization
      Sebastian Lahajnar
    • Data curation
      Sebastian Lahajnar, Alenka Rožanec
    • Formal Analysis
      Sebastian Lahajnar, Alenka Rožanec
    • Investigation
      Sebastian Lahajnar, Alenka Rožanec
    • Methodology
      Sebastian Lahajnar
    • Project administration
      Sebastian Lahajnar, Alenka Rožanec
    • Software
      Sebastian Lahajnar
    • Validation
      Sebastian Lahajnar, Alenka Rožanec
    • Writing – original draft
      Sebastian Lahajnar, Alenka Rožanec
    • Writing – review & editing
      Sebastian Lahajnar, Alenka Rožanec
    • Supervision
      Alenka Rožanec