Hello everyone, I would like to point out the most important thing in the exchange world, how can we make a forecast with the correlation coefficient in the crypto currency exchange?
First of all, The correlation coefficient is not a powerful tool when evaluated alone, but with other variables, a meaningful conclusion can be drawn and we can achieve good gains with using it . One of the most basic methods of achieving success is to predict the rise and fall, take action and buy or sell in advance.
What is correlation?
It is a statistical tool used to evaluate the relationship between two or more variables. Positive correlation means that when one variable increases and the other variable increases at the same time, in opposite side of that, when one variable increases and the other one is decreases then there is a negative correlation. The correlation between x and y is calculated by the formula below.
To give an example from the crypto asset market, you will encounter similar graphics when Ethereum and Dash graphs that offer similar solutions are examined.
The strength of the relationships between two is measured by the correlation coefficient. This means that as the correlation approaches +1, there will be as much change in one variable (eg. 10% change in X), and the other variable (10% in Y). In the opposite scenario, as the correlation of btc and x altcoin approaches -1, the rate of change in one variable (e.g. 10% increase in btc) as well as negative movement in the other variable (10% decrease in altcoin x) can be interpreted. As the correlation approaches 0, the strength of the relationship decreases.
The strength of the relationship between the two variables gets weaker as the correlation approaches to 0. Basically, any change in one variable causes less change in the other variable. When the correlation coefficient is 0, it can be interpreted as not having a linear relationship between them.
Where to find and How to use it?
While examining the correlation data, we select the two variables with a correlation coefficient close to +1 and determine the side that initiates the leading movement. The effects of the percentage changes in the leading variable should be monitored on the second variable. Then, with the assumption that the change in the leading variable will also occur in the successor variable.
For example; You have chosen Eth / Dash and you are viewing the correlation coefficient as 0.86 from the table. You have determined that Eth is the leading variable by examining the graph. Then, when you notice an upward movement in Eth price, it can be deduced that Dash can also move upwards. While making these inferences, the correlation alone is not sufficient, taking into account the fundamental and technical analysis, it can be inferred that there may be a positive change in the Dash price with the data taken from the correlation.
Most important point that should not be forgotten; There is never and will never be a 100% working strategy in the market. You should always take into account the fundamental and technical analysis.
I used the chart from CryptoWatch above which is simple and easy to understand. You can also use other tools that you can find with a simple Google search like "BTC Correlation".
PLEASE CONSIDER! These are all my personal expectations, ideas or opinions and they are not an investment advice.
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