Measure the mathematical relationship between two assets. Discover if you are truly diversified or just doubling your risk on the same trade.
Tip: Paste a series of daily or hourly closing prices separated by commas. Both assets must have the same number of data points.
"These assets move almost perfectly together. Owning both increases your risk without providing much diversification."
The Diversification Trap: Many traders think they are diversified because they own 10 different crypto coins. However, if those coins have a 0.9 correlation with Bitcoin, they all crash together. True diversification requires uncorrelated (0.0) or negatively correlated assets.
Hedging Strategies: Negatively correlated assets (like Gold vs. USD or Inverse ETFs) are used by professionals to hedge their portfolios. When one side goes down, the other goes up, flattening the equity curve.
Statistical Significance: The more price points you enter, the more accurate the correlation score will be. Usually, 20-30 data points (e.g., daily closes for a month) provide a reliable look at the current market relationship.
Relative Strength: If two assets usually have a 0.8 correlation but it suddenly drops to 0.2, it signals that one asset is showing "Relative Strength" or "Weakness" and might be decoupling from the market.
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