It has been shown that the allocation of capital to cryptocurrencies investment positions has a positive effect on the performance of diversified portfolios.
According to a study by crypto asset management agency Iconic Funds and Cryptology Asset Group, being able to invest in crypto has a positive impact on the performance of a trimmed portfolio across a range of models.
The ability of these diversified portfolios to improve returns persists even despite the volatility of cryptocurrencies, particularly the recent market crash in May.
The study, titled, “Cryptocurrencies and Sharpe Ratios of Traditional Investment Models,” examined changes in the risk-return profiles of several portfolio allocation methods as a result of Add’s addition of crypto assets.
This risk-return test is conducted by measuring changes in the Sharpe ratio – a measure of the excess return achieved by holding a volatile asset – when crypto positions are tied into different asset portfolio models.
Since cryptocurrencies are viewed as an independent asset class, the portfolio’s risk-return performance should improve despite its obviously volatile price movements due to the inclusion of cryptocurrencies.
Assuming a passive investment strategy, the study mapped changes in the Sharpe ratio for traditional portfolio models including crypto currencies compared to a reference index without allocation of crypto currencies.
To examine the impact of increasing crypto positions for each portfolio model, the study also rebalanced the crypto allocation on a 1%, 3% and 5% basis.
Commenting on the results of the study, the study said: “This report shows that the inclusion of cryptocurrencies in any of the portfolios mentioned has a positive impact on profitability as well as performance. Risk return of the portfolio,” added:
“This finding applies despite a significant correction in the crypto market at the beginning of 2021. In addition, the addition of further crypto currencies has led to even higher returns.”
According to the document, the results of the 2021 study also give credibility to the conclusions of the 2020 study, which show a positive impact of the allocation of cryptocurrencies on a portfolio regardless of the market crash in mid-March (Black Thursday).
Related: Mr. Wonderful’s cryptocurrencies allocation is now larger than his gold holdings
Exposure to cryptocurrencies is becoming a major trend among institutional investors. As previously reported by Cointelegraph, a recent report by Bank of America found that 20 major publicly traded companies in the United States are making significant investments in digital assets.
In September, a survey by European investment management organization Nickel Digital Asset Management found that 62% of global institutional investors with no exposure to cryptocurrencies will begin breaking into crypto and blockchain within the next 12 months.