The allocation of funds to crypto investment positions has a positive impact on the performance of diversified investment portfolios.
According to research by crypto asset management groups Iconic Funds and Cryptology Asset Group, the ability of crypto investments to positively influence the performance of investment portfolios outperforms most portfolio allocation models.
Cryptocurrencies are increasing the profitability of diversified investment portfolios, especially despite high volatility, such as the market crash in May.
Research titled “Cryptocurrencies and the Sharpe Relationship of Traditional Investment Models” examined the risk / return profile of various portfolio allocation methods when cryptocurrencies are added.
The risk / return analysis was carried out by measuring the change in Sharpe’s ratio by adding crypto positions to different asset portfolio models. The Sharpe index measures the additional performance of holding a highly volatile asset in the portfolio.
Due to the recognition of cryptocurrencies as an uncorrelated asset class, the risk / reward performance of investment portfolios is improving despite high price volatility as cryptocurrencies are added to the portfolio.
The research analyzed the changes in Sharpe’s ratio of traditional portfolio models with aggregate cryptocurrency investment and unfunded models that allocate cryptocurrencies, taking into account the passive investment strategy.
The researchers, who also wanted to examine the effect of increasing crypto positions in each portfolio model, rearranged the proportion allocated to cryptocurrencies as 1 percent, 3 percent, and 5 percent.
In the study detailing the findings, it was stated: “This research found that adding cryptocurrencies to any portfolio has a positive impact on portfolio performance and risk / reward performance.”
“These findings are valid despite the significant corrections observed in the cryptocurrency markets in early 2021. Additionally, adding cryptocurrencies to the portfolio resulted in much higher returns.”