{"slug":"correlation","term":"Correlation","category":"Quant & Stats","definition":"Correlation measures how closely two assets move together, on a scale from -1 to +1. At +1 they move in lockstep, at 0 they're unrelated, at -1 they move opposite. Crypto traders track correlation to BTC and to macro assets like the Nasdaq to judge whether a coin adds diversification or just repackages Bitcoin exposure.","street":"Most alts are just Bitcoin with extra steps — check the correlation before you call it diversification.","depth":["It's computed on returns, not prices, over a rolling window — 30 or 90 days are the common choices, and the window changes the answer. Read the scale in bands: above +0.8 is effectively one trade, +0.3 to +0.7 is loose coupling, near 0 is genuinely independent. Most large-cap alts run +0.7 to +0.9 against BTC, and since 2020 BTC itself often tracks the Nasdaq in risk-off stretches — which is why a Fed day can nuke an 'uncorrelated' altcoin bag.","The trap: correlation is highest exactly when you need diversification most. In a crash everything converges toward 1 as leverage unwinds and people sell whatever still has a bid — so holding ten alts isn't spreading risk, it's one BTC trade with extra beta. The tail worth watching is the opposite one: when a coin stops following BTC on red days, someone is absorbing the sells, and that quiet decoupling tells you more than any pump."],"live":{"label":"See what's actually moving together","href":"/tools/correlations"},"related":["beta","btc-dominance","risk-on-risk-off","dxy"]}