Modern Portfolio Theory and Non-Correlated Assets
The Modern Portfolio Theory (MPT) is a hypothesis put forth by Harry Markowitz in 1952, this investment theory is based on the idea that risk-averse investors can construct portfolios to optimize or maximise expected return based on a given level of market risk, emphasising risk is an inherent part of a higher reward [1]. MPT also suggests its possible to construct an “efficient frontier” of optimal portfolios, offering the maximum possible expected return for a given level of risk [1].
Asset correlation is a measure of how investments move in relation to one another and when [3]. Assets moving in the same direction are highly correlated; assets moving in the opposite direction are negatively correlated; and if the price movement of an asset has no effect on the price movement of the other asset then they are uncorrelated [3]. In MPT, overall risk can be reduced and returns increased by investing in assets that are not correlated [3].
In the cryptocurrency market, the market is highly correlated and hence using MPT to construct a portfolio on the efficient frontier is difficult [4].
To learn how to build your own portfolio of crypto currencies using modern portfolio theory using excel, I would recommend reading and following the steps in this article:
https://medium.com/@asankhaya/build-a-portfolio-of-cryptocurrencies-using-modern-portfolio-theory-d65217858660
Just an end note I would like to add is that MPT is not the be all and end all, and should not be the only thing you consider when building your portfolio. For example, MPT does not consider the transaction costs and the taxes an investor must pay, also using historical performance in MPT calculations does not guarantee future results. Therefore I would highly recommend combining other methods/strategies in designing YOUR optimal portfolio, and i emphasis "your" because everyone's circumstances/situation is different!
Good luck in creating your crypto portfolio and remember to only invest what you can afford to lose!!
[1] https://www.investopedia.com/walkthrough/fund-guide/introduction/1/modern-portfolio-theory-mpt.aspx
[2] http://apifunds.com/images/api-approach-the-efficient-frontier.'png
[3] https://www.thebalance.com/what-is-asset-correlation-2894312
[4] https://medium.com/dcryptinc/demystifying-cryptocurrency-investments-part-i-modern-portfolio-theory-44fbc86a5a5a
sorry, this should not be in the meme category. My apologies!
Selamat! Posting anda masuk peringkat 2 kategori Tulisan Dengan Bayaran Terbanyak, di 10 Besar Tulisan Hari Ini di https://steemit.com/peringkat/@puncakbukit/10-besar-tulisan-hari-ini-kamis-25-januari-2018 .. *)