The world’s most popular cryptocurrency has recorded a high degree of correlation with the Nasdaq 100 since 2020, and a recent drop in Bitcoin’s levels has left investors wondering if the 100-stock gauge of the largest non-financial companies may be destined to show a similar trend.
Over a four-year period, the correlation coefficient or the degree to which price movements mirror each other has been over 0.8.
Values for the coefficient may range from -1 to 1, with the highest implying perfect imitation in terms of change, and a of -1 implying a perfectly opposite effect. A coefficient of 0.8 implying a high degree of correlation between the two.
As a signal, Indian investors have routinely kept their eye on the US equity movements to estimate what kind of a move might also be seen in the Indian markets the following day. This is because the western nation’s markets are trading during hours when Indian markets might not be, and display a reaction led by global events or economic cues from around the world, and especially the US.
This is supported by a correlation coefficient of 0.78 between the NSE’s Nifty 50 and the Nasdaq 100.
