Does Correlation Between Bitcoin Price and Altcoins Mean Buy the Dips?

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Over the past week NEM and Tezos posted amazing double-digit gains, raising the idea that altcoins and Bitcoin bull periods may be correlated.

Altcoin correlation during Bitcoin bullish periodsBitcoin underwent a strong bullish trend from April 2019 to June 2019, producing a more than 200% return and reaching $13,800 in June.

Drawing the correlations between Bitcoin and the top 30 cryptocurrencies in the market today, we find that, Dash, Bitcoin Cash, Monero and EOS with correlations between 74% and 82%. On the other side, USD Coin has the lowest correlation from all currencies, with a negative relationship, followed by HedgeTrade with a 13.3% correlation.

Currencies like Chainlink, Cosmos, Crypto.com Chain and Huobi Token also show a low correlation with Bitcoin - between 20% and 30% - during this period.

Correlation between Bitcoin and altcoins from April-June 2019.Correlations during altcoins bullish periodsDuring altcoins bullish periods like the one observed between December 2018 and March 2019, the correlations between the top currencies and Bitcoin are stronger across all cases except for USD Coin, which is slightly more negative than during Bitcoin's bullish period.

77% of the top currencies correlate at more than 60% with Bitcoin and Monero is the highest correlated at 92.3%. Furthermore, Dash, EOS, Ethereum, XRP and ZCash are all correlated with Bitcoin above 87%.Bitcoin SV, Chainlink, Huobi Token, and Tezos are correlated between 50% and 60% with Bitcoin during this period.

Correlation between Bitcoin and altcoins from Jan. 1, 2020-Feb. 4, 2020.Under Bitcoin and altcoins bullish scenarios, stable coins show the lowest correlation with Bitcoin, while larger currencies such as Ethereum, Litecoin, Bitcoin Cash, NEO, Monero and XRP are always highly correlated with Bitcoin's behavior.

The altcoins studied in this article are much more correlated with Bitcoin when a bullish altcoin period occurs in comparison to when Bitcoin's price action is bullish.

Looking forward, if a new Bitcoin bullish period begins, investors may consider these altcoins as the ones to accumulate as they offer higher upside potential.

Investors who only purchase Bitcoin might adopt a more conservative approach and hedge the riskier Bitcoin investment with a larger allocation into stable coins or currencies that show a lower correlation with Bitcoin during these periods.

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