It has been shown that the allocation of funds to investment positions in cryptocurrencies has a positive effect on the performance of diversified investment portfolios.
According to a research study conducted by the Crypto Asset Management Pools Iconic Funds and the Cryptology Asset Group, The ability of crypto investments to positively affect the performance of investment portfolios includes various asset allocation models.
The ability of cryptocurrencies to improve the profitability of diversified investment portfolios occurs despite their volatility, especially the most recent market crash in May.
The research study entitled “Cryptocurrencies and the Sharpe Ratio of Traditional Investment Models” (Cryptocurrencies and the Sharpe Ratio of Traditional Investment Models) examined changes in the risk-return profile of various portfolio allocation methods due to the inclusion of cryptocurrency investments.
This risk-return test was performed by measuring changes in the Sharpe ratio – the measure of excess return achieved by holding a volatile asset – when crypto positions have been included in the various asset portfolio models.
Since cryptocurrencies are supposed to be an uncorrelated asset class, the risk-return performance of investment portfolios should improve with the addition of cryptocurrencies, despite their apparent volatile price movements.
Assuming a passive investment strategy, the study tracked the changes in the Sharpe ratio for traditional portfolio models with the introduction of exposure to cryptocurrencies versus a benchmark index without allocation of cryptocurrencies.
To study the impact of increasing cryptocurrency positions for each portfolio model, The study also rebalanced the allocation of cryptocurrencies by 1%, 3% and 5%.
In the study, the results were described in detail: “This report comes to the conclusion that the inclusion of cryptocurrencies in a portfolio had a positive effect on the returns as well as on the risk return of the same.”, Add:
“This result applies despite a significant correction in the cryptocurrency markets in early 2021. In addition, the addition of further cryptocurrencies led to even higher returns.”
According to the document, the results of the 2021 study also indicate the conclusions of the 2020 research, which, despite the market crash in mid-March, showed the positive effects of crypto allocations on investment portfolios.
Exposure to cryptocurrencies is becoming an important trend among institutional investors. As previously reported by Cointelegraph, A recent report from Bank of America showed that 20 large US publicly traded companies are making significant investments based on digital assets.
In September, the European investment company Nickel did a survey of Digital Asset Management stated that 62% of global institutional investors with no exposure to cryptocurrencies will move into cryptocurrencies and the blockchain in the next 12 months.