Arman Amiri - Department of Management, Najafabad Branch, Islamic Azad University, Najafabad, Iran

In the last few years, the cryptocurrency market has experienced tremendous growth. This unprecedented growth has caused many people and professional investors to decide to add these assets to their investment portfolio for greater portfolio diversification. This study investigates the impact of diversification with the addition of four cryptocurrencies from January ۲۰۱۷ to October ۲۰۲۲ on traditional asset portfolios including ۷ stock market indexes of Asian and Middle Eastern countries, ۲ commodities, and ۳ currency exchange rates. Also, to better and more accurately check the addition of cryptocurrencies to the portfolio, ۵ asset allocation strategies were used, and for each of the methods, a portfolio with and without cryptocurrencies was formed. Naturally, in each of the portfolio formation methods, different weights were given to the assets. Sharp ratio, Omega ratio, and Sortino ratio performance metrics were used for comparison. By calculating the Sharpe ratio, the Markowitz method was selected as the most optimal strategy, and in this method only ۵.۹۱% of the portfolio was allocated to the cryptocurrencies. While, by calculating Omega ratio and Sortino ratio, the most optimal strategies were chosen as ۱/N and Mean-Gini method. Finally, all methods confirmed the positive impact of adding cryptocurrencies to portfolios. Therefore, our results suggest that investors should include cryptocurrencies in their portfolio as it generates substantial higher risk-adjusted returns.

Cryptocurrency, Diversification, Investment, Financial markets, Portfolio optimization