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Binance Research: Ether was the most correlated crypto asset of 2019

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on Jan 24, 2020
Updated: Mar 11, 2020
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  • Binance's research arm, Binance Research, recently published a report regarding crypto-asset correlation levels in 2019.
  • The report claims that Ethereum had the highest correlation coefficient of 0.69, on average.
  • Researchers believe that projects that focus on smart contracts and dApps typically have a higher correlation, which is why NEO and EOS are also among the highest-correlating assets.

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The research arm of Binance, one of the world’s largest cryptocurrency exchanges, recently published a report stating that Ethereum’s Ether is the most correlated asset of 2019. Binance Research claims that ETH had an average correlation coefficient of around 0.69, out of the 20 leading cryptos.

During its study, Binance Research has learned that assets whose correlation exceeds 0.5 can be considered to have a very strong positive association. Meanwhile, those with -0.5 have a strong negative association.

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The assets whose correlation coefficient ends up between these two levels — around zero — indicate a “lack of linear relationship between two variables.” Meanwhile, having a positive correlation means that two assets are likely to move in the same direction. In other words, if one of the assets starts to grow, the chances are that the other one will, as well.

This could be a very useful indicator for traders and investors who might use it to ensure higher profits or to reduce risks. As for the assets that have a negative correlation, they could, theoretically, be used to hedge against each other, although this is not necessarily a rule.

Ethereum had the highest average correlation coefficient

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Obviously, with a coefficient of 0.69, Ether’s correlation is more than just strong. Binance Research proclaimed it the highest correlated asset, according to data from 2019. Furthermore, it is also worth pointing out that the coefficient that the researchers have reported is only an average one for the entire year.

In separate quarters of 2019, Ethereum’s coefficient changed from 0.69 in Q1 to 0.65 in Q2. Then, in Q3, it was at 0.74, and finally, it dropped slightly to 0.72 in Q4.

Researchers were also interested in identifying the least correlated asset, and they deduced that it was Tezos (XTZ), with a correlation coefficient of 0.3. Others with low correlation include LINK and ATOM.

Studying the rest of the major assets led researchers to conclude that projects focused on products like dApps and smart contracts are likely to have a higher correlation with one another. As for other cryptos that have shown high correlation, there are Binance’s own BNB, as well as NEO, XRP, EOS, LTC, and ADA.

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