Correlation Between BTC and NDXT
Updated
Numerous podcasts and other news sources suggest that there exists a strong positive correlation between BTC price and the price of tech stocks. To test this notion, I plotted the BTC closing price and the NASDAQ 100 Technology Sector (NDXT) closing price on the daily time frame. Based on visual inspection of the upper panel of the chart, there are time periods during which there exists a strong positive correlation, time periods during there exists little to no relationship, and time period during which there exists a strong negative correlation.
Given in the lower panel is the Pearson correlation coefficient value over time (red, white, and red solid line), the 95% confidence interval for the correlation coefficient (boundaries of the confidence interval is given by the solid cyan lines), the lower limit of the correlation coefficient (lower limit = -1.0, white dotted line), upper limit for the correlation coefficient (upper limit = +1.0, white dotted line), and probability value (P value, yellow histogram) for the correlation coefficient. Note that the correlation coefficient is considered statistically significant (i.e., highly unlikely to be due to chance) when the P value is less than 0.05.
When the correlation coefficient line is green, there is a statistically significant positive correlation between the BTC price and the NDXT price.
When the correlation coefficient line is red, there is a statistically significant negative correlation between the BTC price and the NDXT price.
When the correlation coefficient is white, there is no meaningful relationship between the BTC price and the NDXT price.
An important caveat to note: Each Pearson’s correlation coefficient is calculated on 20 days of price data.
This is not financial advice. I am not your financial advisor. This is my opinion.
Given in the lower panel is the Pearson correlation coefficient value over time (red, white, and red solid line), the 95% confidence interval for the correlation coefficient (boundaries of the confidence interval is given by the solid cyan lines), the lower limit of the correlation coefficient (lower limit = -1.0, white dotted line), upper limit for the correlation coefficient (upper limit = +1.0, white dotted line), and probability value (P value, yellow histogram) for the correlation coefficient. Note that the correlation coefficient is considered statistically significant (i.e., highly unlikely to be due to chance) when the P value is less than 0.05.
When the correlation coefficient line is green, there is a statistically significant positive correlation between the BTC price and the NDXT price.
When the correlation coefficient line is red, there is a statistically significant negative correlation between the BTC price and the NDXT price.
When the correlation coefficient is white, there is no meaningful relationship between the BTC price and the NDXT price.
An important caveat to note: Each Pearson’s correlation coefficient is calculated on 20 days of price data.
This is not financial advice. I am not your financial advisor. This is my opinion.
Note
The Correlation with P-Value and Confidence Interval indicator is by @balipour.Note
There are several implications of the often strong linear relationship between the BTC price and the NDXT price: (1) Knowledge of the BTC price allows you to predict the NDXT price with a reasonable degree of accuracy and vice versa.
(2) The P/L from holding BTC for a specific time interval would have been similar to the P/L from holding NDXT and vice versa.
(3) When trading BTC one should be mindful of what the NDXT is doing.
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