International investment portfolio diversification using cryptocurrencies
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2021-09-28
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en
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There is a broad acceptance among scholars and market practitioners that spreading available funds among traditional assets such as equities, bonds, commodities, cash, and cash equivalents allow you to achieve a lower level of risk-taking without sacrificing return. However, most financial advisors neglect the market of cryptocurrencies. To study cryptocurrencies diversification potential, we will analyze 6 popular benchmarks over four traditional asset classes, and Bloomberg Galaxy Crypto Index as a representative of the cryptocurrency market. Among the traditional assets, equities offer their investors the highest return. Although cryptocurrencies indicate higher risks, the risk-adjusted return is much more favorable to investors as measured by the Sharpe ratio. The inclusion of cryptocurrencies into the portfolio significantly increases the number of asset allocation options and suits various risk-return profiles. Our analysis found that portfolios consisting only of traditional assets on average offer higher risk-adjusted returns than portfolios that include cryptocurrencies on a short time scale. While on the more extended investment horizon, portfolios with cryptocurrencies outperform traditional assets in terms of the mean return and risk-adjusted return. Thus, we can conclude - cryptocurrencies cannot serve as a safe-haven asset while there is undoubtedly diversification and risk spreading potential in asset allocation into cryptocurrencies.
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Faculteit der Managementwetenschappen