Understanding the correlation between digital assets is crucial for investors aiming to build resilient, diversified portfolios. In this analysis, we explore the statistical relationship between Bitcoin SV (BSV.CC) and Ethereum Classic (ETC.CC), two prominent cryptocurrencies with distinct technological foundations and market behaviors. By evaluating their historical price movements, volatility, and risk-adjusted returns, investors can make informed decisions about portfolio allocation, hedging strategies, and potential pair trading opportunities.
Understanding Cryptocurrency Correlation
Correlation in financial markets measures how two assets move in relation to each other. The correlation coefficient ranges from -1 to +1:
- +1: Perfect positive correlation — both assets move in the same direction.
- 0: No correlation — price movements are independent.
- -1: Perfect negative correlation — assets move in opposite directions.
For cryptocurrency investors, understanding correlation helps assess diversifiable risk — the portion of risk that can be reduced by combining non-perfectly correlated assets in a portfolio.
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Diversification Potential: Bitcoin SV vs. Ethereum Classic
The 90-day correlation between Bitcoin SV and Ethereum Classic stands at 0.76, indicating a strong positive correlation. This means that over the past three months, both cryptocurrencies have tended to move in the same direction on a daily basis.
A high correlation like this suggests limited diversification benefits when holding both assets simultaneously. Since their price movements are closely aligned, a market-wide downturn or surge is likely to affect both equally, reducing the effectiveness of risk mitigation through diversification.
However, while they move together, their volatility profiles and return potentials differ significantly, opening the door for strategic investment approaches.
Key Metrics at a Glance (90-Day Horizon):
- Correlation Coefficient: 0.76 (strong positive)
- Bitcoin SV Return Multiple: 1.75x lower than Ethereum Classic
- Volatility: Bitcoin SV is 1.91x more volatile than Ethereum Classic
Risk-Adjusted Return (Sharpe-like Ratio):
- Bitcoin SV: ~0.03 per unit of risk
- Ethereum Classic: ~0.10 per unit of risk
This data reveals that Ethereum Classic delivers higher returns per unit of volatility, making it more efficient from a risk-adjusted performance perspective.
Volatility Contrast Between BSV and ETC
Volatility is a double-edged sword — it presents opportunities for high returns but also increases downside risk.
Bitcoin SV has demonstrated significantly higher price swings compared to Ethereum Classic. While BSV may attract speculative traders seeking rapid gains, its instability makes it less suitable for conservative or long-term investors focused on capital preservation.
In contrast, Ethereum Classic’s relatively lower volatility and stronger risk-adjusted returns suggest a more predictable behavior over short to medium timeframes. For example, an investment of $1,407 in Ethereum Classic on April 5, 2025**, would have generated a return of **$292.00 — a 20.75% gain over 90 days.
These figures underscore ETC’s recent outperformance and stability relative to BSV.
Pair Trading Strategy: Leveraging Correlated Assets
Despite their strong correlation, Bitcoin SV and Ethereum Classic can still be used in pair trading strategies to exploit relative price discrepancies while minimizing exposure to broader market movements.
How Pair Trading Works:
- Identify two highly correlated assets (like BSV and ETC).
- Take a long position in the underperforming asset.
- Take a short position in the outperforming asset.
- Profit when the price gap between them narrows.
For instance, if Bitcoin SV begins to lag behind Ethereum Classic despite their usual alignment, a trader might go long on BSV and short ETC, betting on convergence.
This strategy hedges against systemic risks — such as regulatory news or macroeconomic shifts — because gains in one position can offset losses in the other.
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Risk-Adjusted Performance Analysis
Bitcoin SV: Very Weak Risk-Adjusted Returns
Over the last 90 days, Bitcoin SV’s risk-adjusted returns rank below 98% of all global equities and crypto assets. Despite showing solid absolute returns recently, its high volatility drags down efficiency. Investors must weigh whether the potential upside justifies the increased risk.
Ethereum Classic: Insignificant but Improving
Ethereum Classic ranks below 93% of global investments in risk-adjusted terms — still low, but better than BSV. Its more stable performance and improving fundamentals suggest it may be nearing a breakout point, especially if adoption or network activity increases.
Both assets operate in a speculative segment of the market, so traditional equity benchmarks should be applied cautiously.
Frequently Asked Questions (FAQ)
Q: Can I diversify risk by investing in both Bitcoin SV and Ethereum Classic?
A: Due to their high correlation (0.76), diversification benefits are limited. Both tend to react similarly to market forces, so holding both won’t significantly reduce portfolio risk.
Q: Which cryptocurrency offers better risk-adjusted returns?
A: Ethereum Classic outperforms Bitcoin SV in risk-adjusted terms, delivering approximately 0.10 return per unit of volatility versus BSV’s 0.03.
Q: Is pair trading between BSV and ETC viable?
A: Yes. Their strong correlation makes them suitable for pairs trading, allowing investors to profit from relative price movements while staying market-neutral.
Q: How does volatility impact investment decisions between BSV and ETC?
A: Higher volatility in BSV means larger price swings and greater risk. Conservative investors may prefer ETC’s more stable profile for short-term holdings.
Q: What time horizon is best for analyzing BSV and ETC correlation?
A: The 90-day window provides actionable insights for tactical traders. Longer horizons may reveal evolving trends as market conditions shift.
Q: Should I rely solely on correlation for investment decisions?
A: No. Correlation should complement fundamental analysis, on-chain metrics, and macro trends. It’s a tool — not a standalone strategy.
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Final Thoughts
While Bitcoin SV and Ethereum Classic share a strong positive correlation, their differences in volatility and return efficiency offer nuanced opportunities for savvy investors. Direct diversification benefits are minimal due to synchronized price movements, but strategic applications like pair trading can unlock value.
Investors should consider these assets within the broader context of their portfolios, using correlation analysis not as a prediction tool, but as a lens to understand co-movement and manage unsystematic risk.
As always, combining quantitative insights with qualitative research — including network health, developer activity, and use case viability — will lead to more robust decision-making in the dynamic world of digital assets.
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