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

Abdulnasser Hatemi-J, Mohamed Hajji (), Elie Bouri () and Rangan Gupta
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Mohamed Hajji: Department of Mathematical Sciences, UAE University

No 201959, Working Papers from University of Pretoria, Department of Economics

Abstract: This paper investigates 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 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)
JEL-codes: C6 G10 G12 (search for similar items in EconPapers)
Pages: 10 pages
Date: 2019-08
New Economics Papers: this item is included in nep-pay
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Citations: View citations in EconPapers (2)

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Journal Article: The Benefits of Diversification Between Bitcoin, Bonds, Equities and the US Dollar: A Matter of Portfolio Construction (2022)
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