Morgan Stanley's Denny Galindo argues that SOL has historically worked as a better crypto portfolio diversifier than ether, despite being more volatile. Over the four years through April 2026, SOL's correlation with bitcoin was 0.72 versus ether's 0.78. The analysis frames the choice as how to diversify within crypto, not whether to.
Ether may not be the second crypto that portfolio-minded investors reach for. In this week's Crypto Long & Short, Morgan Stanley's Denny Galindo makes the case that SOL has historically acted as a better diversifier than ether, even though it is the more volatile asset of the two.
The correlation gap
The argument rests on how closely each asset tracks bitcoin. Over the four years through April 2026, bitcoin's correlation with ether was 0.78, while SOL's correlation with bitcoin was 0.72. That gap means SOL was slightly less likely to move in the same direction as bitcoin each week.
The direction of the moves matters more than the size. When SOL did not track bitcoin, it was historically less likely than ether to move in step with other parts of a traditional portfolio, such as equities. Galindo notes that SOL's correlation with the S&P 500 Index was slightly lower than both bitcoin's and ether's.
Volatility cuts both ways
Diversifying beyond bitcoin comes at a cost. Ether and SOL are generally less liquid and more volatile than bitcoin, so adding them often raises a portfolio's overall volatility. Since the start of 2026, ether and SOL have shown volatility roughly 35% and 44% higher than bitcoin, respectively.
Whether that extra movement helps depends on correlation. A volatile asset moving with the rest of the portfolio may cut diversification benefits, while one moving differently may add to them. The setup follows the broader entry of crypto into mainstream markets: bitcoin's spot ETPs have pulled in more than $55 billion since their January 2024 launch, helping open the door to ether and SOL products.
How, not whether
Galindo lays out three reasons investors hold digital assets: some treat crypto as digital gold and stay in bitcoin, some want broad exposure to blockchain disruption across bitcoin, ether and SOL, and some chase diversification above all. For that last group, the note points to either a bitcoin-only portfolio or one pairing bitcoin with SOL.
Morgan Stanley makes no call on whether to buy, sell or hold any of these assets, and warns that past correlations may not persist. The sharper question, Galindo suggests, is no longer whether to diversify within crypto, but how.
Source: CoinDesk
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