Let\'s start with two facts. Market these days is inconsistent, that is the first and the second fact is that there are many factors that are affected trend of the price either we are talking about rise or fall all currencies on market. Same thing is with the fiat currency, they come in pair which means there is a strong connection between two currencies. Correlation is the measure of connection between two currencies.
Correlation is the measure of mutual effect of the two phenomena. It is shows the strength of the connection between two currencies in this example. Correlation can be positive and negative and it can go from -1 to +1. It is pretty simple, if the price of Bitcoin is on the rise, people will sell alternative cryptocurrencies and buy Bitcoin. Supply of altcoins are rising, price of the same is dropping.
How Negative Correlation Works
If the demand of Bitcoin is rising, more people want to buy more Bitcoins and people will be ready to pay a price that is higher just to get some Bitcoins, so they can earn money from day-trading or some other methods of earning money from Bitcoins.
How Positive Correlation Works
The example between the government and cryptocurrencies. If government regulations are placed or when a government official makes anti-cryptocurrency statement, demand of Bitcoin is falling down. The government regulations in this situation are mutual influence factor.
In the text above we mentioned the basic understanding of mutual involvement of relationship between two currencies. As we said there are some other factors influence. Correlation is only showing connection between two variables, but if we use factor analysis, which is way more complex we could see more useful information like factor saturation per currencies and we could see which phenomenon influence other.