THE EQONEX CRYPTO GUIDE AND LEARN HUB
Eqonomics

Eqonomics: Understanding Quantile Analysis

May 20, 2022

Adam Wise

Eqonomics: Understanding Quantile Analysis

This week we will take the concept of correlation a step further and explore another technique for visualizing the relationship between assets: quantile analysis.

Rather than calculating a correlation coefficient, quantile analysis offers a more flexible and intuitive result.  

Data is from 18 May 2017 to 18 May 2022 and sourced from Messari, unless otherwise stated.

Preparing the Data

Firstly, the data needs to be prepared, to compare a specific metric. In all our examples we will use daily performance of BTC/USD as the ‘base’ data and daily performance of ETH/USD as the ‘target’ data.

If we plot the entire data set versus one another, we can observe a high correlation with a few outliers.

Chart 1: Daily Performances of BTC/USD vs. ETH/USD

Quintile Analysis

Quintile analysis refers to splitting the data into 5 equal parts. This means buckets of 365 daily performances, as we are using 5 years’ worth of daily data.

  1. The ‘base’ data, BTC/USD daily performance, isordered from smallest to largest.
  2. The corresponding ETH/USD performance for each day is lined up next to the ordered BTC performance.
  3. We then take the average of the performances in each quintile.

Chart 2: Quintile Analysis of ETH/USD Daily Performances

For the bottom 20% of BTC/USD performances, the average ETH/USD performance is -5.5%. We can see from the chart that the average daily performances are similar for each asset.

Although we have selected quintiles, any sized quantile can be used. Alternative popular quantiles include percentiles (100), deciles (10) and quartiles (4).

Decile Analysis

If we take the same data set, but split into 10 deciles:

Chart 3: Decile Analysis of ETH/USD Daily Performances

Increasing the number of quantiles adds granularity to the analysis but needs to be balanced with ease of visual consumption.

In the presented examples, doubling the number of quantiles provides confirmation that the quintile analysis is sufficient. We can observe the positive correlation, and similarity in performance magnitude, remain true.

Digital Gold?

For the last analysis example, we look at Gold vs. BTC prices.

Chart 4: Daily Performances of Gold vs. BTC/USD

Gold prices are selected as the ‘base’ return for bucketing the data (no weekends). Source: World Gold Council, data from 12 May 2017 to 13 May 2022.

Chart 5: Quintile Analysis of Gold Daily Performances

Looking at the scatter chart and the quintile analysis, we see weak positive correlation between gold and BTC performance. For confirmation, we can perform rolling correlation analysis.

Chart 6: 1-month Rolling Correlation Gold vs. BTC

Conclusion

Quantile analysis offers an interesting visualization of the relationship between data sets and is simple to calculate and understand (hopefully!).

For smaller data sets, a few large outliers could skew results due to the averaging approach. Observing different numbers of quantiles, while complementing with rolling correlation calculations, can provide a more complete picture.

Related Articles

The Correlations in Crypto

The Correlations in Crypto

May 13, 2022

Adam Wise

As markets behave badly, we can observe how crypto correlations have developed. In this Eqonomics, we explore the timing and magnitude of the correlation between BTC & ETH.

Keep up with crypto through EQONEX!


This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.

Understanding the value and limitations of Automated Market Makers

Understanding the value and limitations of Automated Market Makers

May 9, 2022

Adam Wise

Volatile conditions negatively impact the bid/ask spread and willingness of liquidity providers to offer depth of market.

All You Need to Know About Futures Combinations

All You Need to Know About Futures Combinations

April 29, 2022

Adam Wise

Following the launch of our latest BTC dated future contract, in this week's Eqonomics we provide a quick overview of our range.

Decentralized Collateralized Stablecoins

Decentralized Collateralized Stablecoins

April 22, 2022

Adam Wise

Today, we take an example of how a collateral-backed stablecoin in DeFi can be issued by anyone and how the peg is maintained. We start with how they are issued, including context from traditional finance.

THE EQONEX CRYPTO GUIDE AND LEARN HUB

Bringing digital assets to the world.

EQONEX is a digital assets financial services company focused on delivering a full, digital asset ecosystem that offers innovative, trusted, and transparent products and services.

Keep up with crypto through EQONEX!


This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.

© 2022 EQONEX Capital Pte Ltd
All rights reserved.

IS 749075