GlossaryIntermediate
Correlation
A measure of how closely two assets' prices tend to move together.
Correlation measures how closely two assets' prices tend to move together over a given period, commonly discussed in the context of diversification, since assets with lower correlation can reduce a portfolio's overall volatility more effectively.
Correlation between crypto assets has historically tended to rise during broad market downturns, a documented pattern that can reduce diversification's protective effect exactly when it might matter most. See Kaavon's "Correlation Coefficient" glossary definition for the specific -1-to-1 statistical measure this concept is formally expressed as.
Examples
- Two assets with historically low correlation may not both decline sharply at the same time.
- Crypto asset correlation has historically tended to rise during broad, sentiment-driven market downturns.