Ethereum has not stabilized over a period of time. Historically, risk — as measured by the standard deviation of returns — tends to be much more stable than returns. The stock market has been relatively more stable compared to Ethereum. As Ethereum becomes more established, we might see a decrease in its volatility. This reminds me to sleep well and sleep tight. The stock market has its upper circuit and lower circuit but here we have a roller coaster of returns. So burn your cash to earn your cash.

A normal distribution, sometimes called the bell curve, is a distribution that occurs naturally in many situations. For example, the bell curve is seen in tests like the SAT and GRE. The bulk of students will score the average ©, while smaller numbers of students will score a B or D. An even smaller percentage of students score an F or an A. This creates a distribution that resembles a bell (hence the nickname). The bell curve is symmetrical. Half of the data will fall to the left of the mean; half will fall to the right.
Many groups follow this type of pattern. That’s why it’s widely used in business, statistics, and in government bodies like the FDA:

• Heights of people.
• Measurement errors.
• Blood pressure.
• Points on a test.
• IQ scores.
• Salaries.

The empirical rule tells you what percentage of your data falls within a certain number of standard deviations from the mean:
• 68% of the data falls within one standard deviation of the mean.
• 95% of the data falls within two standard deviations of the mean.
• 99.7% of the data falls within three standard deviations of the mean. —

The same goes for Ethereum price changes. What’s amazing about this chart is that not only are Ethereum price changes more bunched around the average compared with a Normal distribution, but the tails are much fatter. With a Normal distribution, about two-thirds of the observations tend to be plus/minus one standard deviation away from the mean, while 95 percent of the observations tend to be plus/minus two standard deviations away from the mean, and only 0.3 percent are over three standard deviations away from the mean as shown in the graph above.

What we see in this chart is that tail events are much more prevalent than we would expect with a Normal distribution. For example, Ethereum’s worst one-day drop occurred on March 12, 2020, with a decrease of 45 percent, early in the Covid-19 pandemic, and around the time stocks were declining substantially as well — an event over 8 standard deviations below the average price change.

Huge price increases are much more prevalent than with a normal distribution as well. For example, the biggest one-day price increase, 25.3 percent, occurred on December 7, 2017, and followed another huge gain the previous day of 19.9 percent.

This chart captures both return and risk. I’m measuring return here as the compound annual growth rate or CAGR (statisticians also call this the geometric average) or the rate of growth between the starting value and the ending value (an alternative measure is a simple average, the mean, or arithmetic mean, which is the average returns each year over the number of years). I’m measuring risk as to the standard deviation of returns. I’m using the daily price changes and converting them to annualized return and risk measures.

What’s amazing about this chart is that it shows how Ethereum is in a completely different risk-return universe. We think of the traditional asset universe in the red box in the lower left-hand corner. A broad stock market index like the S&P 500 has had a long-term average annual return (including dividends) of around 10 percent with an annual standard deviation of just below 20 percent. The 2014–2021 period is consistent with these long-run averages. Individual stocks are riskier than the overall market, and that was the case with each of the FANG stocks, which also had higher average returns than the S&P 500 index over this period (of course by definition, not all stocks can outperform the market average!). Apple has over 50% return with a 40% deviation, Facebook has the same return with a lower deviation. While Ethereum averaged an incredible triple-digit average annual return, it also displayed mega-risk, with an annualized standard deviation of over 100%.

Correlation is a statistical measure of the extent to which two asset prices change in a similar or different matter. Correlation is scaled from -1 or perfect negative correlation to +1 or perfect positive correlation. In a perfect negative correlation, when asset A’s price increases, asset B’s price decreases by the same amount; with perfect positive correlation, asset A’s price and asset B’s price move in lock-step. A lower and even negative correlation among assets is a good thing from a portfolio diversification perspective, as individual asset ups and downs are smoothed to some extent. If you randomly choose any two stocks, they would most likely have a low and positive correlation.

What’s amazing about this chart is how low the Ethereum correlation is relative to other asset classes. The correlation with the S&P 500 is 0.20, which suggests that having Ethereum in one’s portfolio is a positive thing to help smooth the ups and downs of the stock market. What surprised me the most was the strong positive correlation between Ethereum and Bitcoin. Since Ethereum is an altcoin, I thought there would be a positive correlation with Bitcoin, but not this strong correlation.

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Source: https://medium.com/technology-hits/ethereums-gains-explained-in-6-original-and-amazing-charts-4686ae0e8ccb?source=rss——-8—————–cryptocurrency