The Benefits of Diversification Between Bitcoin, Bonds, Equities and the US Dollar: A Matter of Portfolio Construction

Abdulnasser Hatemi-J, Mohamed A. Hajji (), Elie Bouri and Rangan Gupta
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Mohamed A. Hajji: Department of Mathematical Sciences, UAE University, Al Ain, UAE
Elie Bouri: Adnan Kassar Business School, Lebanese American University, Lebanon

Asia-Pacific Journal of Operational Research (APJOR), 2022, vol. 39, issue 04, 1-11

Abstract: This paper investigates the potential portfolio diversification between Bitcoin, bonds, equities, and the US dollar. We make use of two approaches for constructing the portfolio. The first is the standard minimum variance approach, and the alternative is based on combining risk and return when the portfolio is constructed. The portfolio based on the minimum variance approach does not result in increasing the return per unit of risk compared to the corresponding value for the best single asset, in this case, Bitcoin. However, the portfolio based on the approach that combines risk and return in the optimization problem does show a return per unit risk higher than the corresponding value for any of the four assets. Thus, the portfolio diversification benefit with respect to these four assets, in terms of return per unit risk, exists only if the portfolio is constructed via the new approach.

Keywords: Portfolio diversification; Bitcoin; equity; bond; US dollar; risk and return (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (5)

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Working Paper: The Benefits of Diversification between Bitcoin, Bonds, Equities and the US Dollar: A Matter of Portfolio Construction (2019)
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DOI: 10.1142/S0217595920400242

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