To any investor diversification is a very important technique for reducing risk. The problem is that most misunderstand it. Most people tend to think diversification is achieved simply by investing in a variety of assets instead of just a few.
This is wrong.
The whole point of diversification is to be invested in assets with different growth drivers. A portfolio consisting of +20 highly correlated assets (Your cryptobags, probably) is the OPPOSITE of diversification. This is taking on risk without being compensated for it. Which is contradictory to the fundamental reason for why you do invest in assets.
Proper diversification is achieved when you reduce the correlation between the assets in your portfolio.
HOW TO USE
To use this tool, add it to your favorites and then add it to your chart. It will by default only show the correlation between an altcoin index and the current chart symbol.
If you go to its settings you can add its correlation to the stock market, gold and you can also easily customize it to any security you want.
0.5 to 1.0: Strong positive correlation
Around 0: Little to no correlation
-0.5 to -1.0: Strong negative correlation
Took a few hours to build this one. It would be super helpful if you can take a look at the index I used - I'm convinced there are better and more accurate methods to this one. But best I could come up with
Later I will evolve this one to an oscillator that measures the relation between cross coin correlations and . Inspired by some great work by @cryptorae
If you have any requests or ideas please shoot
- Added altcoin index
- Changed some calculations
- Restructed code
In true TradingView spirit, the author of this script has published it open-source, so traders can understand and verify it. Cheers to the author! You may use it for free, but reuse of this code in a publication is governed by House Rules. You can favorite it to use it on a chart.