Question 1

What does a high correlation mean for my portfolio?

Accepted Answer

Correlation near +1 means the two assets move together, so holding both barely reduces risk — your combined volatility is close to the simple weighted average. The lower the correlation, the more the swings offset each other and the smaller your portfolio volatility becomes for the same expected return.

Question 2

Why does crypto diversification fail in crashes?

Accepted Answer

Because correlations are not constant. In calm markets alts and majors drift apart, but in a liquidation cascade almost everything sells off against the dollar at once and correlations spike toward 1. The diversification benefit you modelled in normal conditions shrinks to near zero in the tail.

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