Co-Movement and Market Integration of Bitcoin and Ethereum: An Empirical Correlation Analysis

The rising relevance of cryptocurrencies as investments has drawn attention to the analysis of how the values of such investments correlate with each other. In particular, this research paper studies BTC/ETH co-movement and evaluates the strength of the relationship between Bitcoin and Ethereum as well as the consequences for portfolio diversification. To investigate co-movement, daily prices of BTC and ETH are collected from Yahoo Finance for the period from January 2018 to December 2024. This dataset is made up of 2,557 observations for each cryptocurrency. Descriptive statistics, graph analysis and Pearson correlation analysis are used to study BTC and ETH prices. The results have shown that there is a very strong positive co-movement between BTC and ETH (Pearson coefficient = 0.9036 (CI 95%: 0.8962 - 0.9104; *p* < .001)). The positively skewed distributions of Bitcoin and Ethereum were observed. Besides, Bitcoin had larger dispersion and higher kurtosis than Ethereum. Normalised prices showed the general similarity of the two cryptocurrencies' price behavior with the exception that the 2021 rally was more successful for Ethereum and the 2024 growth was more significant for Bitcoin. Nevertheless, because the study uses price levels as the basis for the test, it becomes necessary to conduct further tests using correlation measures based on returns in order to measure their market integration.