Statistics for crypto traders part 3: Correlation and Covariance
In the past blog posts, we covered averages, standard deviation, historical and
implied volatility, and expected move.
Next, we’ll look at, covariance and correlation.
In Modern Portfolio Theory, an investor builds a collection of assets to take
the least risk while maximizing their returns. In order to reduce risk, it’s
necessary to diversify into other assets. The idea is that the perfect assets to
diversify into are those which the price is unaffected if the other declines.
For example, if