Optimal crypto-currency portfolio: can risk be mitigated ?

Zouhair Ait Benhamou and Cyril Filezac de l'Etang ()
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Cyril Filezac de l'Etang: EDEHN - Equipe d'Economie Le Havre Normandie - ULH - Université Le Havre Normandie - NU - Normandie Université, Financia Business School

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Abstract: Optimal portfolio theory is a widely accepted investment strategy designed to minimize risks given a set of expected returns. The rise of cryptocurrencies has sparked interest among investors seeking to gain exposure to the tremendous returns they offer, and diversify their portfolios in order to mitigate their high volatility. Nevertheless, standard optimal portfolio theory cannot apply, given the high level of positive correlation major cryptocurrencies exhibit, in contrast to conventional currencies. We therefore argue that a different approach regarding optimal weights needs to be considered in order to achieve optimal or efficient tradeoffs. The weights are computed using an alternative specification to the variance-covariance matrix, which contrasts with standard optimal portfolio theory.

Keywords: Portfolio; Cryptocurrencies (search for similar items in EconPapers)
Date: 2023-06
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