It’s all in the timing again: simple active portfolio strategies that outperform naïve diversification in the cryptocurrency market

Tavares, Ricardo de Souza; Caldeira, João Frois; Júnior, Gerson de Souza Raimundo

doi:10.1080/13504851.2020.1859446

Cited by 4 publications

(2 citation statements)

References 13 publications

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“…Regarding the construction of portfolios with cryptocurrencies, it is revealed that portfolios that only consider cryptocurrencies in their composition benefit from the use of portfolio selection when compared to naive portfolios; revealing gains of Sharpe ratio and average return (Tavares et al 2020). Nonetheless, considering the highly speculative nature of the cryptocurrency market, all investors (professional and individual investors) should consider the optimization of their cryptocurrency portfolios enhancing their performance by minimizing their variance (Schellinger 2020).…”

Section: Cryptocurrency Portfoliosmentioning

confidence: 99%

Portfolio Diversification, Hedge and Safe-Haven Properties in Cryptocurrency Investments and Financial Economics: A Systematic Literature Review

Almeida

Gonçalves

2022

JRFM

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Our study collected and synthetized the existing knowledge on portfolio diversification, hedge, and safe-haven properties in cryptocurrency investments. We sampled 146 studies published in journals ranked in the Association of Business Schools 2021 journals list, considering all fields of knowledge, and elaborated a systematic literature review along with a bibliometric analysis. Our results indicate a fast-growing literature evidencing cryptocurrencies’ ability to hedge against stocks, fiat currencies, geopolitical risks, and Economic Policy Uncertainty (EPU) risk; also, that cryptocurrencies present diversification and safe-haven properties; that stablecoins reveal unstable peg with the US dollar; that uncertainty is a determinant for cryptocurrency returns. Additionally, we show that investors should consider Gold, along with the European carbon market, CBOE Bitcoin futures, and crude oil to hedge against unexpected movements in the cryptocurrency market.

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Section: Cryptocurrency Portfoliosmentioning

confidence: 99%

Portfolio Diversification, Hedge and Safe-Haven Properties in Cryptocurrency Investments and Financial Economics: A Systematic Literature Review

Almeida

Gonçalves

2022

JRFM

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“…However, there do not seem to be any apparent benefits for diversification in adding cryptocurrencies to the portfolios of risk-averse investors. More recently, Tavares et al [ 18 ] investigated the diversification benefits of the top 20 cryptocurrencies on a portfolio of the S&P 100 using volatility timing and reward-to-risk timing. The findings imply that the inclusion of cryptocurrencies in a portfolio of conventional assets does not increase the portfolio’s financial gain.…”

Section: Literature Reviewmentioning

confidence: 99%

A K-Means Classification and Entropy Pooling Portfolio Strategy for Small and Large Capitalization Cryptocurrencies

Clément

Angaman

2023

Entropy

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In this study, we propose three portfolio strategies: allocation based on the normality assumption, the skewed-Student t distribution, and the entropy pooling (EP) method for 14 small- and large-capitalization (cap) cryptocurrencies. We categorize our portfolios into three groups: portfolio 1, consisting of three large-cap cryptocurrencies and four small-cap cryptocurrencies from various K-means classification clusters; and portfolios 2 and 3, consisting of seven small-cap and seven large-cap cryptocurrencies, respectively. Then, we investigate the performance of the proposed strategies on these portfolios by performing a backtest during a crypto market crash. Our backtesting covers April 2022 to October 2022, when many cryptocurrencies experienced significant losses. Our results indicate that the wealth progression under the normality assumption exceeds that of the other two strategies, though they all exhibit losses in terms of final wealth. In addition, we found that portfolio 3 is the best-performing portfolio in terms of wealth progression and performance measures, followed by portfolios 1 and 2, respectively. Hence, our results suggest that investors will benefit from investing in a portfolio consisting of large-cap cryptocurrencies. In other words, it may be safer to invest in large-cap cryptocurrencies than in small-cap cryptocurrencies. Moreover, our results indicate that adding large- and small-cap cryptocurrencies to a portfolio could improve the diversification benefit and risk-adjusted returns. Therefore, while cryptocurrencies may offer potentially high returns and diversification benefits in a portfolio, investors should be aware of the risks and carefully consider their investment objectives and risk tolerance before investing in them.

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Asset allocation models for big tech stocks: The importance of lower partial moments and short length windows

Miralles-Quirós,

Miralles-Quirós

2024

Borsa Istanbul Review

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It’s all in the timing again: simple active portfolio strategies that outperform naïve diversification in the cryptocurrency market

Cited by 4 publications

References 13 publications

Portfolio Diversification, Hedge and Safe-Haven Properties in Cryptocurrency Investments and Financial Economics: A Systematic Literature Review

Portfolio Diversification, Hedge and Safe-Haven Properties in Cryptocurrency Investments and Financial Economics: A Systematic Literature Review

A K-Means Classification and Entropy Pooling Portfolio Strategy for Small and Large Capitalization Cryptocurrencies

Asset allocation models for big tech stocks: The importance of lower partial moments and short length windows

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