Today we saw the price of hive break through the $1 barrier again (come down again), and subsequently, saw the price of SPS and DEC also increase today and a thought struck me, how correlated are the price of DEC and SPS to fluctuations in the price of hive?
Correlation Basics
To give a quick primer on the basics of correlation – correlation is a statistical analysis technique to measure is the linear relationship between two variables. It determines if one variable changes do the other variable change in a particular direction and strength. Therefore, if there is a positive correlation, the other variable may also increase in the same direction when one variable increases. Likewise, if there is a negative correlation, the other variable tends to decrease in the same direction if one variable decreases.
Hive vs. SPS vs. DEC Chart
Using coingecko latest USD prices, we can see the price chart of the three tokens since SPS went live on July 26th, 2021. Using a basic eye test, we can see the DEC and SPS charts are similar. hive and SPS seem different, and there are some similarities between hive and DEC.
Correlation Analysis
There are many tools and ways to calculate correlation, but we will use the good old faithful Excel for this post. I will not go into the details of how to do it; there are numerous posts on the topic with a quick google. Generally speaking, a strong correlation exists when a value exceeds 0.7+ correlation, and anything lower is moderate to weaker.
| SPS | Hive | DEC | |
|---|---|---|---|
| SPS | 1 | ||
| Hive | 0.411422 | 1 | |
| DEC | 0.894723 | 0.630855 | 1 |
Therefore, there is a
- Strong positive correlation between SPS and DEC.
- Moderate positive correlation between hive and DEC
- Weak positive correlation between hive and SPS
Yes, Ok, What Does This All Mean?
Over the past month, I have been published a couple of technical analysis posts on the SPS token. And in the last post, we had seen all three indicators point to a bearish market structure. However, after today's post, my approach to SPS is to monitor the hive price and see how the price changes affect the price of DEC and SPS. Ultimately, this is not financial advice, but I plan to look to buy SPS below $0.5 and look to take profit for those trades in a staggered fashion between $0.6 and $0.9 (and above) zone.
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