Topic: Minimizing the risk- How much possible it is? - page 6. (Read 842 times)

Im into forex trading and im fully aware about correlations and other similar stuffs.The question is, do these things applicable to BTC? Possible but not all the times.

We cant apply this on several coins but lets say we do correlate with all alt coins in the market.We do base on dominance on here and i believe this is where most people do base on
rather than spotting on several alt that do possibly correlate bitcoins price.

One thing i do follow which is looking on dominance over alts then this is where i do get my basis.

I'm not going to invest in such coins which have less liquidity/volume, no much exchange etc. I have set up my criteria for choosing coins-
1. Must be listed in Binance.
2. Must have listed 1 more exchanges which is well known.
3. At least $1 million Volume per day.

The first negatively correlated which I'm thinking of investing is- dock.io, it has an average of $1 million volume and listed on exchanges like Binance, Kucoin, Huobi and so more. Another one can be VeChain which has a volume of more than $50 million on average. These are not fixed yet. I'm closely looking into coins and trying to pick two best. The list you have given are totally shitcoin and I'm not going to invest in such coins of course.

If correlation factor would work in crypto & someone would invest in negatively correlated coin with ETH, they would never face such huge loss at the first place. Talking to ETH at 0.09 BTC wouldn't be much of hard once BTC hit ATH and alt started to gain weight but who knows, ETH supply has increased a lot as well.

I will share you guys which coin I will pick & let you know the update weekly if possible or monthly.

Wouldn't it be more practical if you only invested in bitcoin, gold, other metals and also invested in things in the real world? Look at the prices of altcoins in relation to Bitcoin, People who bought ETH for the price of 0.09 BTC are suffering big losses and probably won't see ETH reaching 0.09 BTC again

I'm not sure but putting $50 in BTC and $25 on each A and B means you're not well diversified. When Bitcoin goes down, A will go down too. You will have loss on two coins (BTC and A) and positive on one (B). You should only put BTC and B or A and B if you're looking to diversify your portfolio and minimize your risk.

In fact, correlation is just a statistical function.

image source

You can even do it yourself using Excel (=CORREL) if you have the historical price data, which you can get from sites like CryptoCompare for free.

Could happen if :

• The coins/token was really a shitcoin with a huge gap order, the coins don't have volume trading so he have the same price went the correction was happen.
• The coins/token on their rally at that time went the correction was happen, because of that the coins can still on green percentage for the change price 24h/7d.

Since you looking safe coins for an investment/trading, shitcoin cannot be an option for alternative investment the volume & order book was really small. I take one of example from the site :

• HAC : Not listed on coinmarketcap
• RAIN : No Data.
• GunCoin : Not listed on coinmarketcap

I check one of the coins from the site, they said :

The coins information only listed on coingecko, why he got a result "very strong positive relationship against bitcoin" because the coins don't have so much activity trading its mean shitcoin without volume with almost 6 months according to the chart from yobit so he got the same price went the rally/correction was happen. Like what i said, on list 1.

However, in my opinion and research about the correlation against bitcoin. The result like this, went the correction was happening the USD & BTC value for the coins can be decrease, for the rally the value of USD can be increased/same but the value of Bitcoin can be decreased/same at thats time.

General intelligence says that it is best to invest and trade using a limited amount of your total invest-able capital.

That intelligence is established in two general ideas: risk and reward.

Measurably, the larger your bid size, the more potential risk / potential reward per position. Bonus is nice, but to ensure rewards over time, it is vital to limit risk in the short term.

And, for your case, you'll need to understand that you're trading for profit not for just loosing out the money invested on one coin while profiting out the money invested on another opposite coin. I can understand that risk management is also a thing, but minimizing the risk in such a way that you're not even generating profits while trading coins, makes it quite non-sense. And yes, what you stated over the OP, its something that will minimize the risk of losing money by 98%.

Negative correlation refers to if BTC increases, A will decrease, if BTC decreases, A will increase. I guess that's what I'm looking for. Well, the result is limited to last 100 days.

That would be good. I have to do some extra work; that's not something hard but lot of works behind the scene. I guess I can do it without finding out the correlation between both the investment. Rather, I would put $100, $50 in BTC in $25 for each altcoin. It's the same thing, isn't it?

The algorithm is simple. As I said above, they just have had some math on the last 100 days & based on that, they have calculated the correlation.

That's exactly what I'm looking for. If I lose something in project A, that will be covered by project B. Of course, both the profit and loss will not be same. There might be a different and that's what I will realise. Not much risk, not much gain.

Thanks and yeah, diversifying into another asset is of course good idea. Actually, I'm trying to have an experiment if it works at all or not. I'm trying to diversify the risk from same industry. It's a well known practice in traditional stock market but I don't know if anyone ever tried in crypto; of course did since we have the site to get the correlation factor.

Well, the chance of the method to be effective here quite low though. In stock market, we might have seasonal things which can affect a certain stock positively in a certain period while other stock may be affected negatively in that period. Since, in crypto the real use too low, I guess it won't much work. I will of course have a try through following the correlation factor of the site shared in OP and let you guys update later about the output.

This one. The first thing that comes to my mind is the baccarat table, you can't beat on both banker and player, so it will simply negate each other.


So if we are talking about diversification here, better go to stocks or precious metal. It's hard to invest on altcoin nowadays and as much as we love to see that website with the correlation thingy, I doubt that it will be very much effective in the long run, just saying.

if in forex trading it is referred to as a hedging strategy, but the forex system is not the same as the crypto exchange system in general, now there are many forex trades that have crypto trading so that they can use a hedging strategy on the exchange,
maybe we can use a stable coin for hedging, Although it has a small risk, the profit is also small, especially if without leverage.

It's safer to diversify with another kind of portfolio, such as mutual funds, gold index, etc rather than investing in altcoin (even if they truly have a negative correlation or high independence from Bitcoin movement). The crypto market is still fragile, a movement in Bitcoin still affects nearly all altcoins so the net positive is relatively small especially if you're not in the bull market.

If you still want to do it, make sure you're not in a downtrend and the overall market is showing strength against Bitcoin, and if Bitcoin starts to shake things out, close your portfolio quickly. dbshck & ryzaadit have a good point about it.

You're diversifying for sure.

However, I'm not sure whether or not it's necessarily a good idea to invest in two coins that are completely opposites of each other. That could potentially mean that any gains in one of the coins can be offset by losses in another coin in your portfolio. I'd rather pick a sector which I think has potential and diversify within that sector.

Also, you're not completely eliminating the risk that one of the projects will go rogue. This indiosyncratic risk will always be there.

I actually do not trust this "predictor" site to give out correlations without knowing the algorithm behind it. Do you have any idea what algorithm they might be using? Unless I know that I wont use it. Also if I know that then I would probably learn how to apply it myself.

Get my point? You cant always use these methods to mitigate risks. The best way to mitigate the risk is invest in those altcoins that you know (not feel) have a reason to go up in price and demand. Sadly 99% of altcoins dont have any method to generate a market demand and thus they die out.

To be completely honest, I do not prefer to go for the altcoins at all. Keeping the focus on bitcoin and using a dollar cost averaging on bitcoin to buy and sell at proper low and high respectively is what I feel minimizes risks.

I would say yes, but if your portfolio consists of just A and B then I think you should look at the A vs B correlation directly.

Good point. I haven't done any proper analysis but I guess that in a strong trending market (e.g. 2017) no major altcoin has a negative correlation against Bitcoin.

No, with my understanding of trading, investing in two altcoins isn't minimizing the risk, you can research on two altcoins and yet they turn out to be shitcoins. Investing in many altcoins raises the risk of losses because I don't trust altcoins diversification as they are so many and you cannot pick out the one that will be the right one for your investment plans.
Can this site be trusted, do you think a trader can invest based on their predictions?

Probably you are talking about diversification asset with a few altcoins to minimize the risk trading. But the reality you from price movement provider,none one of altcoin has a correlation positive against BTC went the correction/rally was happening. Went the bitcoin price was up or down, the value still gets downs USD/BTC pair except for stable coins, the coins/token volatility cant be tracked, probably could be more/less than the past history, however, i don't really agree what has been explained on the website.

The conclusion from me, it's not really gonna minimize your loss with diversification assets on a few altcoins. 

Lately, I am thinking of spending more time into trading. Until now, I was a part time trader (actually holder) looking into only a few top ranked coins. Now, I have decided to go deep and try to make some profit.

Let's get back to the topic.

In theory, in traditional stock market, if we invest into two negatively correlated share, the risk are minimized because if for instance; Stock A's price increase, stock B's price will be decreased as both of these are negatively correlated. As a result, investor will realize minimum risk; profit is lower as well. The goal of such investment is to minimize the risk as much as possible. Since the cryptocurrency market is highly volatile, if we choose positively correlated or only one crypto to invest in; the chance is we may lose half or more value of our investment; hence, in theory, negatively correlated can save us from losing the investment in a significant value.

I have got this site providing correlation of different altcoin against bitcoin- https://coinpredictor.io/altcoins

Let's say; Coin A has a positive correlation of 0.89 against BTC price & Coin B has a negative correlation of 0.89 against BTC price.

Are we safe to say investing on both these coins are minimizing the risk; provided that I will have a good research on both these projects to ensure that these are not shitcoins? Ignore the fact that all coins without BTC is a shit (Note for bitcoin enthusiasts).