Correlation Between BTC and DXYPreviously, I’ve demonstrated that, oftentimes, there exists a strong positive correlation between the BTC price and the NASDAQ 100 Technology Sector (NDXT) price suggesting that knowledge of the BTC price allows one to predict the NDXT price with a reasonable degree of accuracy and vice versa.
The purpose here is to test the notion that when the US dollar is strong, BTC is weak and vice versa. To test this notion, I plotted the BTC closing price (purple solid line) and the US Dollar Currency Index (DXY) closing price (black solid line) on the daily time frame. The DXY closing price was used here as an index of the degree of US dollar strength. Based on visual inspection of the upper panel of the chart, there are time periods during which there exists a strong positive correlation, time periods during there exists little to no relationship, and time period during which there exists a strong negative correlation.
Given in the lower panel is the Pearson correlation coefficient value over time (red, white, and red solid line), the 95% confidence interval for the correlation coefficient (boundaries of the confidence interval is given by the solid cyan lines), the lower limit of the correlation coefficient (lower limit = -1.0, inverse relationship, white dotted line), upper limit for the correlation coefficient (upper limit = +1.0, direct relationship, white dotted line), and probability value (P value, yellow histogram) for the correlation coefficient. Note that the correlation coefficient is considered statistically significant (i.e., highly unlikely to be due to chance) when the P value is less than 0.05.
When the correlation coefficient line is green, there is a statistically significant positive correlation between the BTC price and the DXY price.
When the correlation coefficient line is red, there is a statistically significant negative correlation between the BTC price and the DXY price.
When the correlation coefficient is white, there is no meaningful relationship between the BTC price and the DXY price.
An important caveat to note: Each Pearson’s correlation coefficient is calculated on 20 days of price data.
Interestingly, from Jan 1, 2022 to the present the DXY price has increased by greater than 44%. During the same time interval, the BTC price has decreased by greater than 14%
The Correlation with P-Value and Confidence Interval indicator is by @balipour.
This is not financial advice. I am not your financial advisor. This is my opinion.
