Correlation Between Binance Coin and Ethereum: Diversification and Volatility Analysis

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Introduction to Binance Coin and Ethereum Correlation

Understanding the relationship between Binance Coin (BNB) and Ethereum (ETH) is crucial for cryptocurrency investors seeking portfolio diversification. This analysis explores their historical price movements, risk-adjusted performance, and pair trading opportunities.

Key Metrics Overview

Diversification Potential Between BNB and ETH

Correlation Analysis Findings

The 0.96 correlation indicates nearly perfect price movement synchronization, suggesting:

  1. Limited diversification benefits: Overlapping price action reduces risk-spreading potential
  2. Similar market exposure: Both assets respond comparably to market volatility
  3. Shared sector influences: Common blockchain industry factors affect both coins

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Practical Implications for Investors

Volatility and Risk Comparison

MetricBinance CoinEthereum
90-day risk level2.44x lowerBaseline
Return per risk unit0.150.21
Price stabilityMore stableMore volatile

Pair Trading Strategies

Advantages of BNB-ETH Pair Trading

  1. Hedging unsystematic risk: Offsets individual asset volatility
  2. Market-neutral positions: Reduces exposure to sector-wide movements
  3. Profit from relative performance: Capitalizes on temporary price divergences

Implementation Considerations

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Risk-Adjusted Performance Evaluation

Binance Coin Characteristics

Ethereum Characteristics

Frequently Asked Questions

How often should I check the BNB-ETH correlation?

Monthly monitoring is recommended, with more frequent checks during periods of high market volatility.

What makes these cryptocurrencies so highly correlated?

Both are:

Can I profit from their high correlation?

Yes, through:

How much diversification benefit should I expect?

Very minimal - consider adding less correlated assets like Bitcoin or stablecoins for better risk spreading.

What tools can help track their relationship?

Use:

Conclusion and Investment Recommendations

The extreme correlation between Binance Coin and Ethereum presents both challenges and opportunities. Investors should:

  1. Recognize diversification limits between these specific assets
  2. Consider pair trading for sophisticated strategies
  3. Monitor volatility patterns for optimal timing
  4. Expand portfolio holdings with less-correlated crypto assets

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