A network-based strategy of price correlations for optimal cryptocurrency portfolios

Ruixue Jing and Luis Rocha

Finance Research Letters, 2023, vol. 58, issue PC

Abstract: A cryptocurrency is a digital asset maintained by a decentralised system using cryptography. The complex correlations between the cryptocurrencies’ prices may be exploited to understand the market dynamics and build efficient investment portfolios. We use network methods to select cryptocurrencies and the Markowitz Portfolio Theory to create portfolios that are agnostic to future market behaviour. The performance of our network-based portfolios is optimal with 46 cryptocurrencies and superior to benchmarks for short-term investments, reaching up to 1,066% average expected returns within 1 day. Cryptocurrency portfolio investment may be competitive but calls for caution given the high variability of prices.

Keywords: Cryptocurrency; Network model; Portfolio; Optimisation; Price correlation; Financial market (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:58:y:2023:i:pc:s1544612323008759

DOI: 10.1016/j.frl.2023.104503

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