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An investigation into the use of multiple cryptocurrencies in a diversified portfolio
This study investigates the possible diversification benefits of multiple cryptocurrencies (Bitcoin, Ethereum and Litecoin) in a diversified portfolio from the perspective of a South African investor over the period 30 July 2015 to 20 December 2017. Cryptocurrencies are mostly still in their infancy...
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| Format: | Thesis |
| Language: | English |
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Department of Finance and Tax
2019
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| _version_ | 1867613230574075904 |
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| access_status_str | Open Access |
| author | Kibble, Alexander |
| author2 | Rajaratnam, Kanshukan |
| author_browse | Kibble, Alexander Rajaratnam, Kanshukan |
| author_facet | Rajaratnam, Kanshukan Kibble, Alexander |
| author_sort | Kibble, Alexander |
| collection | Thesis |
| description | This study investigates the possible diversification benefits of multiple cryptocurrencies (Bitcoin, Ethereum and Litecoin) in a diversified portfolio from the perspective of a South African investor over the period 30 July 2015 to 20 December 2017. Cryptocurrencies are mostly still in their infancy, and reliable information regarding their usefulness as an asset class in a diversified portfolio is scarce to come by. This study adopts a quantitative research methodology which incorporates the following statistical methods: i) mean-semivariance optimisation; ii) Kendall Tau-b correlations; and, iii) autocorrelation function for serial correlations. The JSE All Bond Index is used as bond investment proxy, a combination of the JSE Top 40, Resources Index and Financial-Industrials Index is used as an equity investment proxy, and the LBMA Gold PM is used as a gold investment proxy. The study found that all three cryptocurrencies under investigation yielded risk-return benefits for a diversified portfolio. The alternative cryptocurrencies (Ethereum and Litecoin) exhibited higher levels of downside risk (semideviation) than Bitcoin, but proportionately greater returns. Hence, the addition of these two cryptocurrencies to a portfolio that includes Bitcoin and traditional assets resulted in an expansion of the efficient frontier. Ethereum exhibited slightly lower correlations to Bitcoin than Litecoin, which is most likely attributed to its greater technological differences, but performed worse as a diversifier. All three cryptocurrencies yielded similar low to very low correlations to all traditional assets, including gold - representative of the potential diversification benefits. The autocorrelation function resulted in high positive serial correlations for all three cryptocurrencies, indicative of strong trending behaviour and high volatility. |
| format | Thesis |
| id | oai:open.uct.ac.za:11427/29371 |
| institution | University of Cape Town (South Africa) |
| language | eng |
| last_indexed | 2026-06-10T12:32:50.328Z |
| license_str | Not specified — see source repository |
| provenance_str_mv | Harvested via OAI-PMH from UCTD — University of Cape Town Open Access Repository |
| publishDate | 2019 |
| publishDateRange | 2019 |
| publishDateSort | 2019 |
| publisher | Department of Finance and Tax |
| publisherStr | Department of Finance and Tax |
| record_format | dspace |
| source_str | UCTD — University of Cape Town Open Access Repository |
| spelling | oai:open.uct.ac.za:11427/29371 An investigation into the use of multiple cryptocurrencies in a diversified portfolio Kibble, Alexander Rajaratnam, Kanshukan Investment Management This study investigates the possible diversification benefits of multiple cryptocurrencies (Bitcoin, Ethereum and Litecoin) in a diversified portfolio from the perspective of a South African investor over the period 30 July 2015 to 20 December 2017. Cryptocurrencies are mostly still in their infancy, and reliable information regarding their usefulness as an asset class in a diversified portfolio is scarce to come by. This study adopts a quantitative research methodology which incorporates the following statistical methods: i) mean-semivariance optimisation; ii) Kendall Tau-b correlations; and, iii) autocorrelation function for serial correlations. The JSE All Bond Index is used as bond investment proxy, a combination of the JSE Top 40, Resources Index and Financial-Industrials Index is used as an equity investment proxy, and the LBMA Gold PM is used as a gold investment proxy. The study found that all three cryptocurrencies under investigation yielded risk-return benefits for a diversified portfolio. The alternative cryptocurrencies (Ethereum and Litecoin) exhibited higher levels of downside risk (semideviation) than Bitcoin, but proportionately greater returns. Hence, the addition of these two cryptocurrencies to a portfolio that includes Bitcoin and traditional assets resulted in an expansion of the efficient frontier. Ethereum exhibited slightly lower correlations to Bitcoin than Litecoin, which is most likely attributed to its greater technological differences, but performed worse as a diversifier. All three cryptocurrencies yielded similar low to very low correlations to all traditional assets, including gold - representative of the potential diversification benefits. The autocorrelation function resulted in high positive serial correlations for all three cryptocurrencies, indicative of strong trending behaviour and high volatility. 2019-02-06T12:44:50Z 2019-02-06T12:44:50Z 2018 2019-02-06T08:22:14Z Master Thesis Masters MCom http://hdl.handle.net/11427/29371 eng application/pdf Department of Finance and Tax Faculty of Commerce University of Cape Town |
| spellingShingle | Investment Management Kibble, Alexander An investigation into the use of multiple cryptocurrencies in a diversified portfolio |
| thesis_degree_str | Master's |
| title | An investigation into the use of multiple cryptocurrencies in a diversified portfolio |
| title_full | An investigation into the use of multiple cryptocurrencies in a diversified portfolio |
| title_fullStr | An investigation into the use of multiple cryptocurrencies in a diversified portfolio |
| title_full_unstemmed | An investigation into the use of multiple cryptocurrencies in a diversified portfolio |
| title_short | An investigation into the use of multiple cryptocurrencies in a diversified portfolio |
| title_sort | investigation into the use of multiple cryptocurrencies in a diversified portfolio |
| topic | Investment Management |
| url | http://hdl.handle.net/11427/29371 |
| work_keys_str_mv | AT kibblealexander aninvestigationintotheuseofmultiplecryptocurrenciesinadiversifiedportfolio AT kibblealexander investigationintotheuseofmultiplecryptocurrenciesinadiversifiedportfolio |