2 May, 13 tweets, 4 min read
Correlation is a key ingredient in the portfolio construction process.

If used correctly, it can be a powerful tool to reduce risk and improve portfolio diversification.

Here’s why it matters.

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First, let’s define what correlation is.

Correlation is a statistic that measures the relationship between two assets.

It is represented by a coefficient that ranges between -1 and +1 which tells you how likely it is that the price of two assets will move together.
If 2 assets have a correlation of 1, this means that they move in the same direction 100% of the time.

A correlation of -1 means that the 2 assets move in opposite directions.

While a correlation of 0 means the 2 assets have no relationship with one another.
Why does this matter for my portfolio?

A highly correlated portfolio is a riskier portfolio. It means that when one of your tokens falls, it’s likely that all of them will also fall.

On the contrary, if your tokens are going up, then a highly correlated portfolio feels great.
And while risk can never be eliminated, you can build a portfolio using a mix of assets that are less correlated, uncorrelated, or even negatively correlated to reduce the risk and minimize potential losses.
A correlation matrix is the easiest way to visualize the correlation coefficients of a group of assets.

It is simply a table where each cell shows the correlation between two different assets.

For example, over the past 30 days, the correlation between \$UNI and \$BNB is .45.
With this in mind, let’s take a look at the correlation matrices of different sectors.

Top Assets

Correlation among most of the top assets remains high.

The only exception is \$DOGE which is the only asset with negative correlations to the rest of the group.
DeFi

Correlations in DeFi range from a low of -20% to a high of 84%. One exception is \$LUNA which has become increasingly uncorrelated with the rest of the assets in the group week-over-week.
Currencies

Unsurprisingly, correlations among currencies are concentrated on the high end of the correlation spectrum.

\$DOGE is the exception, which has become slightly more uncorrelated with the rest of the assets in the group.
Smart Contract Platforms

Correlation among smart contract platforms tends to be on the positive side.

\$SOL is the only exception becoming increasingly uncorrelated with values as low as -45%
Decentralized Exchanges

Correlations within the group aren’t concentrated on either side of the spectrum.

\$UNI, \$CAKE, \$RUNE have seen some decline in their correlation over the past week relative to the other assets in the sector.
Web-3

Week-over-week correlations among Web-3 have mostly remained stable.

The two to note are \$STX and \$AR which are becoming increasingly uncorrelated with the rest of the group.
Check out this week's weekly recap for more

👇🏻👇🏻👇🏻

messari.io/article/weekly…

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# More from @RobertoTalamas

30 Apr
El riesgo y el rendimiento son dos caras de la misma moneda.

En el resumen de esta semana, ampliamos nuestro análisis para explorar el rendimiento y el riesgo en los principales sectores del mercado de criptomonedas

1/
Activos Principales - Rendimiento

Los principales activos basados en la capitalización de mercado experimentaron una fuerte caída durante el fin de semana.

Sin embargo, la mayoría de los activos se recuperaron rápidamente terminando la semana en territorio positivo.
30 Apr
Risk and return are two sides of the same coin.

Generally, the higher the expected return of an investment, the higher the risk it carries.

In this week’s recap, we expanded our analytics to drill down on the performance and risk across the major sectors of crypto markets.

1/
Top Assets – Performance

Top assets based on market capitalization experienced a sharp decline during the weekend.

However, most assets rebounded quickly ending the week in positive territory.

Leaders: \$UNI, \$ETH, and \$ADA
Laggards: \$DOT, \$LTC, and \$LINK
23 Apr
Q1 2021 marked the beginning of the long-awaited ecosystem wars.

In this week's recap, we dive into the weekly performance of the most popular protocols across different Layer-1s.
Ethereum

Assets with longevity on their side showed the highest resilience during the week. As of April 22nd, \$MKR and \$COMP were the only two assets in the Ethereum ecosystem with positive weekly returns.
Cosmos

All assets in the Cosmos ecosystem suffered last week. \$ATOM, the chain's native token, had the worst performance ending the week with a -27% return.
23 Apr
Since the last market cycle, CEX crypto derivative volumes have seen immense growth.

At its peak, BTC derivatives reached trading volumes of \$84 billion, an increase of 922% from June 2020.

Can the same be said about decentralized derivatives?

👇🏻
The derivatives section of our piece investigates the rise of decentralized perpetual and synthetic protocols during Q1 2021.

messari.io/article/q1-202…
Volumes in decentralized exchanges are beginning to rival their centralized counterparts.

Unfortunately, the same cannot be said about derivates.

Ethereum’s exorbitant fees have hampered the growth of derivatives trading.

22 Apr
In Q1 2021 lending protocols saw an explosion in growth as DeFi continues to gain widespread adoption.

During the quarter lending deposits through all the major lending protocols surpassed \$25 billion, a 2.8x increase from the end of Q4.

1/
Q1 DeFi Review: Lending, Derivatives, Insurance, and more.

messari.io/article/q1-202…
Unsurprisingly, as lending deposits increased the number of outstanding loans also went parabolic.

In Q1 approximately \$10 billion was borrowed across the top lending platforms.
16 Apr
Weekly Performance Recap as of April 15th

Data: @MessariCrypto

Centralized and decentralized exchanges were the top-performing sectors during the week fueled by the excitement of the Coinbase IPO.
Top Assets by Market Capitalization

\$DOGE and \$XRP were the clear outperformers of the group with weekly returns of 114% and 88% respectively.
Sector Drill Down - DeFi

DeFi was the third best performing sector of the week with an aggregate return of 22.4%. Among DeFi assets, THORChain's native token \$RUNE led the way, returning 54% on the week.