2017 Risk versus Reward Analysis - Top 50 Currencies
This article investigates the question "What sort of volatility has accompanied the returns of the top digital currencies in 2017?"
There is typically a trade-off between risk and return. To accept a higher risk we expect to be rewarded with a higher return. For example, government bonds are generally less risky than equities but the return from bonds has been lower than equities (on average) when you look over a long period of time.
I wanted to compare the risk and return based on daily price data for the top 50 currencies in 2017. My measure of volatility is the relative standard deviation [the standard deviation(price)/average (price)]
The first table below shows the currencies I have included in the analysis and the volatility and returns for the year to date. You will see that Ripple has had the highest returns but also the highest volatility. Bitcoin has one of the lowest volatilities in the group (which is not surprising given it's much larger market cap over the period).
In terms of making an investment choice based on risk and return, an investor will always choose an investment with a lower volatility if the return is the same. This brings me to the graph below the table. This shows the a scatterplot with return and risk plotted for each of the currencies in the table. You will see that the currency "Decred" has had a comparable return to "Ripple" but the volatility has been much lower. Does this mean that Decred is a better investment for the future than "Ripple"? Not necessarily but given the advantage of hindsight, it would have been a better choice for the year to date.
We are naturally more interested in returns but volatility is a very important consideration that needs to be borne in mind when making an investment.
I plan to dig deeper into this subject so this is just an introductory note.
Thanks for reading and enjoy the weekend.
Having just looked at the currencies, if someone had bought $50 worth of Stellar Lumens coins on May 1st and sold today on the high spike, they would have made a profit of about $975 (estimated calculations). I wonder, then, if one had bought $50 worth on May 1st, what kind of ripple would that have caused compared to what actually happened in that time-frame. What do you think?
I think same about Decred, and wait Gnosis data, cause I'm very intetrested.
Interesting. Where on the graph is Steem?
If you like volatility, crypto is the place to be.
Nice.
Muy buena información! Gracias
Very interesting article, congratulations. I am following you :-)
Thanks for the comment, follow back https://steemit.com/@user644 !
Nice job!
Interesting analysis... and noteworthy that the YTD return on Steem is really towards the low end of the field, suggesting (perhaps) that there is quite a bit of room to grow, going forward. Of course, volatility/returns is also a product of price... you're more likely to see huge percentage swings in a 3c coin than a $30 coin.
This is valuable information. Thanks for sharing! I would like to add that everyone loves volatility as long as values are going the proper direction for their position. Everyone hates volatility when it's going the wrong way. It would be a lot of work, but if you could develop separate data series for up periods and down periods. You could then look at which ones have higher vol on the upside and lower vol on the downside to really narrow in on which ones have the good volatility vs. the bad kind. Make sense?
Oh, and upvoted and following.
Fascinating stuff. Thanks. Pity I sold all my Ripple a year ago. Will be kicking myself for a long time over that.