Cryptos have a weak relationship with the major equity indexes. Anything between -0.15 and 0.15 is considered to have no relationship. Digital currency’s correlation with the S&P 500 is 0.13, and its correlation with the Russell 2000 is 0.05. The Nasdaq 100 is slightly more correlated but still very low at 0.28. This lack of correlation of cryptos with the overall market makes it an attractive diversification vehicle for many.
The exceptions are the following symbols, which can be used as statistical proxies for cryptos.
MicroStrategy Inc. (MSTR) and Amplify Transformation Data Sharing (BLOK) have the highest correlations with bitcoin at 0.74 and 0.72, respectively.
So, if you like to participate in the rise and fall of cryptos, these are going to be your best bets. (See “High correlation proxies for cryptos,” below.)
Options markets are good in all the equities mentioned above. The stock with the highest amount traded per day is Coinbase Global (COIN) with a three-month average of $1.1 billion of stock changing hands per day.
In fact, that’s a fast way of examining the liquidity—simply by multiplying the volume traded per day by price. Generally, anything less than $25 million a day traded is a sign you’d probably want to avoid, and many stocks within this sector tend to be thinly traded.
Michael Rechenthin, Ph.D. (aka “Dr. Data”) heads research and development at tastytrade. @mrechenthin