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A network-based strategy of price correlations for optimal cryptocurrency portfolios

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  • Jing, Ruixue
  • Rocha, Luis E.C.

Abstract

A cryptocurrency is a digital asset maintained by a decentralised system using cryptography. The complex correlations between the cryptocurrencies’ prices may be exploited to understand the market dynamics and build efficient investment portfolios. We use network methods to select cryptocurrencies and the Markowitz Portfolio Theory to create portfolios that are agnostic to future market behaviour. The performance of our network-based portfolios is optimal with 46 cryptocurrencies and superior to benchmarks for short-term investments, reaching up to 1,066% average expected returns within 1 day. Cryptocurrency portfolio investment may be competitive but calls for caution given the high variability of prices.

Suggested Citation

  • Jing, Ruixue & Rocha, Luis E.C., 2023. "A network-based strategy of price correlations for optimal cryptocurrency portfolios," Finance Research Letters, Elsevier, vol. 58(PC).
    • Handle: RePEc:eee:finlet:v:58:y:2023:i:pc:s1544612323008759
    DOI: 10.1016/j.frl.2023.104503
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    2. Fakhfekh, Mohamed & Bejaoui, Azza & Bariviera, Aurelio F. & Jeribi, Ahmed, 2024. "Dependence structure between NFT, DeFi and cryptocurrencies in turbulent times: An Archimax copula approach," The North American Journal of Economics and Finance, Elsevier, vol. 70(C).
    3. Zhao, Yingxiu & Goodell, John W. & Shen, Dehua, 2024. "Spillover effects according to classification of cryptocurrency," Finance Research Letters, Elsevier, vol. 65(C).
    4. Nichanan Sakolvieng, 2024. "Optimizing Cryptocurrency Portfolios: A Comparative Study of Rebalancing Strategies," GATR Journals jfbr220, Global Academy of Training and Research (GATR) Enterprise.

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