Hey everyone and thanks for jumping back Into the cryptoverse today we're going To talk about the Spearman correlation Coefficient Matrix and how you can use This to come up with a diversified Portfolio if you guys like the content Make sure you subscribe to the channel Give the video a thumbs up and check out Into the cryptographers premium at into The cryptiverse.com we do have all the Different tiers including a free one Links in the description below and of Course you'll find charts like the one We'll talk about in this video now the Spearman correlation coefficient should Not be confused with the Pearson Correlation coefficient Matrix which is Also a video we've previously made so if You were to look through the history of This channel we've actually made a video On the Pearson correlation coefficient Matrix before but the difference the Main difference is the Pearson Correlation coefficient is more so used To assess a linear correlation between Two sets of data whereas the Spearman Correlation coefficient better assesses How they are in terms of being described Or if they can be described or how well Can be described via a monotonic Function so there are of course those Are the main differences between between A Pearson correlation coefficient and The Spearman so in this video we're
Going to be talking specifically about The spearm and correlation coefficient And we're looking at least initially Over 365-day time period and what this chart Shows we have total market cap in the First Column and then the first row and Then Bitcoin and then ethereum and then Apple Amazon Netflix alphabet meta dxy You know the US dollar currency index Gold Silver Platinum Palladium nickel And copper so you sort of have a nice Basket of different assets that we can Easily compare to And the reason we do this is because you Know as an investor and this is not Financial advice of course but as an Investor you don't really want to put All your eggs in one basket because You're always going to have to face the Idiosyncratic risk of every individual Asset class so for instance if you were To have 90 of your net worth in a single Asset or asset class what happens if That asset class sees a major drawdown Right it's it's not very ideal for your Total net worth to experience a drawdown Commensurate with the drawdown that you Might have seen in an individual asset Class like especially with crypto you Know we know we've talked about how Crypto can drop a lot especially the Altcoin market can drop a lot in Bear Markets and there are plenty of altcoins
No shortage of them in fact that have Already dropped 90 percent over the last 14 or 15 months so you need to Understand that you know some level of Diversification can help protect you as An investor now One thing to look at here when you sort Of just isolate some of the Cryptocurrencies right you have total Market cap Bitcoin and ethereum but Notice that and of course the diagonal Is just going to be one all the way Across because you're just comparing one Asset to itself right so total market Cap compared to Total market cap Of course the correlation is going to be One Bitcoin compared to bitcoin one Ethereum compared to ethereum one and That's why you'll see the diagonal is Just ones it's because you're just Comparing that asset to itself but what You'll notice is that the total market Cap is highly correlated to bitcoin it Makes sense because Bitcoin of course is A large component of the total market Cap but additionally Bitcoin is fairly Highly correlated to ethereum the Spearman correlation coefficient over The course of a 365-day Time window is Actually coming in at around 0.91 okay So this is this is a fairly High a Fairly High correlation coefficient I Mean it's not perfect monotonic Relationship but it is still relatively
High and so what this essentially shows Of course is that you know by being Quote unquote Diversified into Bitcoin And ethereum You're still experiencing very similar Types of drawdowns very similar types of Moves to the upside and you know Bitcoin From the all-time high has dropped Around 77 at this point uh whereas Ethereum I think has dropped a little Bit more Um it drops over 80 percent I believe Back in June of 2022 But at the at the end of the day despite The fact that they've had various Drawdowns The the movements you know in terms of Positive movement negative movement they Haven't really been that dissimilar and So you know diversifying your portfolio By just only having a basket of Cryptocurrencies isn't really a strong Level of diversification now it might be Diversifying within crypto but it's not Really a strong measure of having a Diversified portfolio because the crypto Market is a largely highly correlated With itself I mean if any individual Asset like an altcoin is likely going to Be fairly highly correlated to a lot of Other altcoins that's not always the Case but it's generally generally what You'll see but what you'll also notice Is that when you go out of the
Cryptocurrency asset class and you Compare say the correlation coefficient Between say Bitcoin and apple it drops Down to around 0.64 and if you compare It between say Bitcoin and Amazon it's 0.77 Bitcoin and Netflix 0.19 Bitcoin And alphabet 0.85 and then Bitcoin in Meta 0.92 so the correlate with meta is Actually quite high but what you'll see And and maybe that's because of their um You know their their jump into the Cryptoverse so to speak or maybe into The metaverse Um you know not too long ago but By having exposure to you know to crypto And equities it will show you various Types of drawdown right like you're not You're not as likely going to see that Same type of drawdown or if one asset Class is moving down it doesn't Necessarily mean the other asset class Is moving down think back to To um October when you know in October The S P 500 was in fact putting in a new Low so right if we take a look at at the S p back in October the s p was putting In a new low but but Bitcoin was not not In October Right it it actually avoided a new low In October Um but then Bitcoin put in a new low in November why while there was this Idiosyncratic risk of the crypto asset Class when we you know when the Federal
Reserve raised interest rates a lot and You ended up seeing the Fallout of FTX Now the Fallout of FTX is not going to Affect other comp you know it's not Going to affect Apple in the same way It's going to affect Bitcoin or ethereum Or or the altcoin market so again a Diversification outside is useful so That you're not exposing yourself to all The same risk right it's it's a good way To sort of spread out your risk amongst Various asset classes now of course in 2022 for the most part most risk most Most risk assets just simply went down Right I mean it's not like Um it's not like you would have avoided A ton of losses had you just put all Your money in Risk assets that's why we Said in 2022 right like cash is King I Mean it's not you know there's really Nowhere great to hide Um and and cash was a very valuable Place uh to be and again I still think Cash is a is a good place to sort of Hedge your bets but it shows you again That the idiosyncratic risk you can sort Of minimize that for any individual Asset by being Diversified across other Assets Um and then if you look at say like the Correlation between Bitcoin and some of The precious metals you'll see it it's Actually a bit lower right a 0.67 with Gold 0.45 with silver 0.14 with Platinum
0.60 with Palladium 0.36 with nickel and 0.69 with copper so again it it shows There is some correlation there right Some positive correlation but it's not As highly correlated Um and and you know things like Platinum Is not really correlated much at all It's more or less right around zero what You'll really notice though is what is Red right it's the dollar and and when The dollar As we know over the last year right when The dollar is going up Risk asset so generally going down and When the dollar is going down risk Assets originally going up now precious Metals aren't really considered risk Assets but they did go down uh last year And one of the things we said many many Times especially with gold and silver is That as long as the dollar continues to Rally you're likely going to see gold And silver within sort of a holding Pattern but at some point when the Dollar sees a massive move to the Downside you actually might see the Things like you know Commodities like Gold and silver actually actually put in Um some some better returns but this is One way to look at the market and just Sort of assess you know where where is The market and and how how some level of Verification can actually be quite good And now I don't really talk much about
Equities on at least the public Channel I do talk a bit more about it on on the Premium side Um you know meta is one of these and Maybe meta would actually be worthwhile To to maybe take a look at right now Just because it is it has actually been Somewhat highly correlated to to the Crypto Market And Um at least on the public side I was I Was very sorry on the on the premium Side I was actually very vocal about uh Meta being a very good buy below a Hundred dollars and Um but now it's sort of seen a a 2X move Here and I'm not yet sure I you know I'm Sort of falling into the camp that that This rally is getting somewhat spent I'm Not saying it can't go higher but in General I I believe meta's already Talking about you know further cuts and What not coming up Um and you know to the to the to the Labor to the their their Workforce I'm Not really sure if that's you know if That rumor has been substantiated or not But I I still well I actually am bullish On metal long term Um I do imagine that we're going to see Some some fade of this rally in the Coming months and it's sort of like a Long drawn out Um maybe call it like a re-accumulation
Phase before going into another into Another bull market is is my general Assessment and you can see this pattern Is sort of it's popping up on meta and One of the reasons I I thought meta was At least somewhat worthwhile down there Was you know it was a very similar move Right like a 77 move to the downside Netflix same thing right I mean it was It was basically the same same Playbook Right I mean you have like a 77 move to The downside everyone hates it and and Where did it rally back up to right I Mean you know essentially the same place That meta is just sort of back testing This trend line that it it once held as Support so when you look at at these Correlation with the Spearman Correlation coefficient Matrix is not to Just say that you should go YOLO in to You know to lose their projects I mean Like some of these are could very well Be coming up on some major resistance Levels that that could take quite some Time to actually break through in a Sustained way but it does show you that Over the Long Haul having a diversified Portfolio can actually be quite quite Useful right And and you know coincidentally Um in the same way that Netflix saw a Sizable rally at a 77 drawdown to the Downside Um meta saw a sizable rally after a 77
Drawdown to the downside Bitcoin also Saw and at least so far has seen a nice Rally after a 77 move to the downside Now all of these don't necessarily mean Anything as we've as we've said before I Mean you know markets can can drop 77 Percent and and and still not Necessarily be done I mean you can see The NASDAQ back in in 2001 dropped 77 Had a nice rally and then ultimately Resolved to the downside but the point Is is you know I do think 2023 is going To present several opportunities for Accumulation it already has it probably Will continue to present opportunities For accumulation for a lot of different Assets throughout a majority of this Year and um and you know figuring out How to be Diversified by looking at Correlations between various assets I Think is is useful and you can also look At this over various time frames as well Like if you wanted to look at it over a Shorter time frame like say like a 60-day time frame you can see it's Actually quite a bit different like the The correlation between Bitcoin and a Lot of the precious metals at least you Know Silver Platinum Palladium and Nickel have has actually been negative Recently whereas with gold and copper It's actually been positive we actually Talked about copper not too long ago Um and one of the reasons we spoke about
Copper is is actually because it it Tends to lead CPI so if you actually Take a look at at Copper Just sort of like as a as an anecdote Here it's been rallying for a little bit You know I mean since November copper Has started to Rally some and and the Reason why that's notable is if you take The look at at you know Um CPI you'll see that it's it's Actually been a fairly close Relationship right like when copper is Is moving up you'll see inflation moving Higher when when copper is moving down Inflation's going down it tends to lead It you know copper sort of made this Move first and then and then in an Inflation year over year followed same Thing Um same thing over here right like Copper started to come down and then Inflation started to come down here Copper started to go up and then Inflation started to go up and now Inflation copper started to come down in February and then inflation started to Come down but now Copper's starting to Go back up some and so it's starting to Raise the question well is inflation Going to come down as quickly as a lot Of people are hoping it is or are we Starting to see the you know sort of Like the the re-acceleration in some Sectors like in some Commodities that
Might make inflation stickier than what People are ideally hoping for Um but again I mean you know these these Sorts of things can show you how how you Know being Diversified amongst various Asset classes can sort of help mitigate Some of the downside in your overall Portfolio right I mean like if some Catastrophic thing happened in crypto It's not necessarily going to affect you Know maybe your allocation in apple or Your allocation in silver or if Something drastic happened that affected The precious metal Market it's not Necessarily going to affect your Allocation in Bitcoin or allocation in Ethereum or Netflix or apple or alphabet So again diversification I think is good Um it's not always the most uh flashy Thing to talk about but it is I I think A worth a worthwhile thing to consider For serious investors looking to sort of Minimize minimize some of their risk and And try to grow their portfolio in in a You know maybe a more sound way over a Relatively long period of time and the Other thing I wanted to take a look at Is if you actually look at how the Spearman correlation coefficient Has has evolved this is a 60-day time Frame as a function of time it's Actually been getting higher and higher When looking at the correlation between Bitcoin and ethereum if you look at this
On say like a 365 day time frame you'll See that you know it came down here in February 2017 and pretty big move back Over here in February of 2022 but for The most part they've been very very Correlated and and that hasn't really Changed okay so again I think we'll wrap It up there remember to subscribe to the Channel if you're not we also so again Do you have into the cryptiverse premium We have tons of charts on here not only For crypto But also for equities and and for the Macro verse as well make sure you check It out several several different tiers Available of course you can cancel at Any time Um we'll wrap it up there we'll see you Guys next time bye
