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Filtering amplitude dependence of correlation dynamics in complex systems: application to the cryptocurrency market

Author

Listed:
  • Marcin Wk{a}torek
  • Marija Bezbradica
  • Martin Crane
  • Jaros{l}aw Kwapie'n
  • Stanis{l}aw Dro.zd.z

Abstract

Based on the cryptocurrency market dynamics, this study presents a general methodology for analyzing evolving correlation structures in complex systems using the $q$-dependent detrended cross-correlation coefficient \rho(q,s). By extending traditional metrics, this approach captures correlations at varying fluctuation amplitudes and time scales. The method employs $q$-dependent minimum spanning trees ($q$MSTs) to visualize evolving network structures. Using minute-by-minute exchange rate data for 140 cryptocurrencies on Binance (Jan 2021-Oct 2024), a rolling window analysis reveals significant shifts in $q$MSTs, notably around April 2022 during the Terra/Luna crash. Initially centralized around Bitcoin (BTC), the network later decentralized, with Ethereum (ETH) and others gaining prominence. Spectral analysis confirms BTC's declining dominance and increased diversification among assets. A key finding is that medium-scale fluctuations exhibit stronger correlations than large-scale ones, with $q$MSTs based on the latter being more decentralized. Properly exploiting such facts may offer the possibility of a more flexible optimal portfolio construction. Distance metrics highlight that major disruptions amplify correlation differences, leading to fully decentralized structures during crashes. These results demonstrate $q$MSTs' effectiveness in uncovering fluctuation-dependent correlations, with potential applications beyond finance, including biology, social and other complex systems.

Suggested Citation

  • Marcin Wk{a}torek & Marija Bezbradica & Martin Crane & Jaros{l}aw Kwapie'n & Stanis{l}aw Dro.zd.z, 2025. "Filtering amplitude dependence of correlation dynamics in complex systems: application to the cryptocurrency market," Papers 2509.18820, arXiv.org.
    • Handle: RePEc:arx:papers:2509.18820
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    File URL: http://arxiv.org/pdf/2509.18820
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