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Need diversification? Consider adding cryptocurrency, the least correlated asset class

by Larry Cermak

April 22, 2019, 9:51AM EDT  ·  4 min read

Quick Take

  • There is no meaningful correlation between bitcoin (and other cryptocurrencies) and other asset classes (equities, commodities, property and fixed income)
  • Because of the lack of correlation, exposure to cryptocurrency could be beneficial to the diversification of traditional portfolios
  • Study shows that if investors believe that bitcoin will outperform the rest of the assets by 30% a year, they should hold about 1% of their portfolio in bitcoin

by Larry Cermak

April 22, 2019, 9:51AM EDT  ·  4 min read

The following analysis by The Block shows that there is no correlation between bitcoin (and other cryptocurrencies) and traditional asset classes, indicating that a small exposure to cryptocurrency markets could be useful to diversify a traditional portfolio.

In order to measure the correlation between cryptocurrencies and traditional asset classes, the Pearson correlation coefficient is used.