Optimization and Diversification of Cryptocurrency Portfolios: A Composite Copula-Based Approach

Herve M. Tenkam; Jules C. Mba; Sutene M. Mwambi

doi:10.3390/app12136408

Optimization and Diversification of Cryptocurrency Portfolios: A Composite Copula-Based Approach

Herve M. Tenkam, Jules C. Mba, Sutene M. Mwambi

School of Economics

Research output: Contribution to journal › Article › peer-review

8 Citations (Scopus)

Abstract

This paper focuses on the selection and optimisation of a cryptoasset portfolio, using the K-means clustering algorithm and GARCH C-Vine copula model combined with the differential evolution algorithm. This integrated approach allows the construction of a diversified portfolio of eight cryptocurrencies and determines an optimal allocation strategy making it possible to minimize the conditional value-at-risk of the portfolio and maximise the return. Our results show that stable-coins such as True-USD are negatively correlated to the other cryptoassets in the portfolio and could therefore be a safe haven for crypto-investors during market turmoil. Our findings are in line with previous studies exhibiting stablecoins as potential diversifiers.

Original language	English
Article number	6408
Journal	Applied Sciences (Switzerland)
Volume	12
Issue number	13
DOIs	https://doi.org/10.3390/app12136408
Publication status	Published - 1 Jul 2022

Keywords

CVaR
K-means clustering
cryptocurrency
differential evolution algorithm
multivariate t-copula
vine copula

ASJC Scopus subject areas

General Materials Science
Instrumentation
General Engineering
Process Chemistry and Technology
Computer Science Applications
Fluid Flow and Transfer Processes

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10.3390/app12136408

Cite this

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title = "Optimization and Diversification of Cryptocurrency Portfolios: A Composite Copula-Based Approach",

abstract = "This paper focuses on the selection and optimisation of a cryptoasset portfolio, using the K-means clustering algorithm and GARCH C-Vine copula model combined with the differential evolution algorithm. This integrated approach allows the construction of a diversified portfolio of eight cryptocurrencies and determines an optimal allocation strategy making it possible to minimize the conditional value-at-risk of the portfolio and maximise the return. Our results show that stable-coins such as True-USD are negatively correlated to the other cryptoassets in the portfolio and could therefore be a safe haven for crypto-investors during market turmoil. Our findings are in line with previous studies exhibiting stablecoins as potential diversifiers.",

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AB - This paper focuses on the selection and optimisation of a cryptoasset portfolio, using the K-means clustering algorithm and GARCH C-Vine copula model combined with the differential evolution algorithm. This integrated approach allows the construction of a diversified portfolio of eight cryptocurrencies and determines an optimal allocation strategy making it possible to minimize the conditional value-at-risk of the portfolio and maximise the return. Our results show that stable-coins such as True-USD are negatively correlated to the other cryptoassets in the portfolio and could therefore be a safe haven for crypto-investors during market turmoil. Our findings are in line with previous studies exhibiting stablecoins as potential diversifiers.

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Optimization and Diversification of Cryptocurrency Portfolios: A Composite Copula-Based Approach

Abstract

Keywords

ASJC Scopus subject areas

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