New TheBlock report suggests the correlation between cryptocurrency prices increased in 2018

A new report published by The Block shows that virtual currencies have been strongly correlated in 2018. In general, when an investor enters the virtual currency market, experts recommend having a more diversified portfolio. But this could be more complicated in the virtual currency market.

As soon as the price of Bitcoin grows or decreases, other virtual currencies follow. This is the way the market works in general. Although there are some differences between cryptocurrencies with a light and strong background behind with a smaller roof and less developed projects, the market usually moves in the same direction.

According to the report, it is possible to see the emergence of tokenized securities to start experimenting with activities in the cryptographic market behaving without being correlated.

The correlation used varies from -1 to 1 where 1 means perfect correlation and -1 indicates negative correlation. The closer the number is to zero, the lower the correlation between the resources. The virtual currencies analyzed were Bitcoin (BTC), Ethereum (ETH), XRP, Bitcoin Cash (BCH), EOS, Stellar (XLM), Litecoin (LTC), Tron (TRX), Cardano (ADA), IOTA (MIOTA) and Monero (XMR).

In the table provided by the report, there are positive correlations between virtual currencies. Bitcoin and Ethereum are very correlated with other resources. Ethereum has a total correlation of 74.1% with other activities followed by Bitcoin with a total correlation of 73%. The least correlated resource was Tron with a correlation of 49.6%.

The most related cryptocurrencies they were Cardano / Stellari, followed by Bitcoin / Litecoin and Monero / Ethereum. It seems that the less correlated activities are Tron / Stellar with a correlation of 41.4%.

The report compared the results with 2017. The results were surprising as there was a correlation between these activities but the relationship was completely different. Apparently, this is due to the fact that in 2018 there was a larger trading volume and more speculation on virtual currencies.

Furthermore, analysts show that there is also a correlation between the volumes traded in different digital currencies. The trade volume of Bitcoin is the most positively correlated with other cryptocurrencies with an average correlation of 53.2%. The least correlated were Tron and Monero.

If investors are entering the space for the first time, the best thing to do is always look at other activities to diversify a portfolio. The 100% allocation in virtual currencies is very risky. The use of various virtual currencies as a method to diversify the portfolio does not seem to change the general trend of the assets. However, the lesser known virtual currencies, the greater the risks, but also the returns in a bull market. Bitcoin or Ethereum would work better during a bear trend than other ICO tokens.