Liquidity Flow Correlation
Analyze the rolling Pearson correlation between logarithmic transformations of liquidity flow and Bitcoin price movements across multiple time horizons (90, 180, and 365 days). This advanced analysis helps identify periods when liquidity conditions align with Bitcoin price action.
Understanding Correlation Analysis
What is Logarithmic Pearson Correlation?
This analysis uses Pearson correlation on logarithmically transformed data (log(LFI) vs log(BTC)). The logarithmic transformation helps capture proportional relationships and reduces the impact of extreme values. Values range from -1 to +1, where +1 indicates perfect positive correlation, -1 indicates perfect negative correlation, and 0 indicates no correlation.
Time Horizons
- 90 Days: Short-term correlation analysis for identifying recent market dynamics
- 180 Days: Medium-term correlation for understanding seasonal patterns
- 365 Days: Long-term correlation for identifying macro trends
Interpreting Results
Higher positive correlations suggest that liquidity conditions and Bitcoin prices move in the same direction, indicating that increased liquidity supports higher Bitcoin prices. Negative correlations might indicate periods where other factors dominate price movement.
Use this analysis to understand how global liquidity conditions influence Bitcoin's price action across different time horizons and market cycles.