Crypto Correlations
A definition-first reference on how crypto assets move together — and what correlation does (and does not) imply.
Plain-English Definition
Crypto correlations describe the degree to which two crypto assets (or an asset and a benchmark like Bitcoin) tend to move in the same direction over a given period.
Correlation is a measurement of co-movement, not a claim about causality. Two assets can be highly correlated for a time and then diverge as market structure, liquidity, narratives, or risk conditions change.
Correlation is conditional. It depends on the time window, the market regime, and the returns being measured (daily, weekly, intraday).
Why the Term Exists
Crypto markets often experience broad, risk-on / risk-off phases where many tokens rise or fall together. Traders and risk managers use correlation to:
- Estimate diversification (or the lack of it)
- Detect market-wide “one-trade” behavior
- Model portfolio risk and drawdowns
- Compare sector behavior (L1s, DeFi, memes, exchange tokens, etc.)
What Correlation Does Not Tell You
- It does not prove one asset causes another to move.
- It does not guarantee future co-movement.
- It does not capture tail behavior (crash risk) by itself.
- It can be distorted by volatility clustering, illiquidity, or pricing gaps.
Common Correlation Measures
- Pearson correlation: linear co-movement of returns (most common).
- Spearman correlation: rank-based co-movement (less sensitive to outliers).
- Rolling correlation: correlation computed across a moving window to show regime shifts.
Related Terms
- Returns: percentage changes over time (usually log or simple returns).
- Volatility: magnitude of price variation.
- Beta: sensitivity to a benchmark (e.g., BTC).
- Cointegration: long-run relationship distinct from short-run correlation.
This site is definition-first: it explains terminology and interpretation patterns. It does not provide trading advice.