How Does the Correlation of a Token to Bitcoin Affect Its Beta?
The correlation of a token to Bitcoin significantly affects its Beta, as Bitcoin is often used as the proxy for the overall crypto market. A token with a high positive correlation to Bitcoin will have a high Beta, indicating it is highly sensitive to general market movements.
Conversely, a low or negative correlation suggests the token is less susceptible to systemic market risk, potentially leading to a lower Beta and a lower risk-adjusted discount rate.
Glossar
Beta
Measurement ⎊ Beta quantifies the systematic risk of an asset relative to a specific market benchmark.
High Positive Correlation
Convergence ⎊ High positive correlation within cryptocurrency, options, and derivatives signifies a tendency for asset prices to move in the same direction and magnitude, amplifying systemic risk exposure.
Correlation
Interdependence ⎊ The concept of correlation, within cryptocurrency derivatives and options trading, fundamentally describes the statistical relationship between two or more assets, indices, or variables.
Negative Correlation
Relationship ⎊ Negative correlation describes a statistical relationship where the price movements of two assets move inversely to each other.
Bitcoin Correlation
Correlation ⎊ Bitcoin Correlation quantifies the statistical relationship between the price movements of Bitcoin and other financial instruments, encompassing altcoins, traditional equities, commodities, and fiat currencies.