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The role of cryptocurrencies in the portfolio optimization during the Covid-19 pandemic

The performance and diversification benefits of the cryptocurrencies during the economic downturn are yet to be explored. Previous evidence suggests that cryptocurrencies are effective portfolio diversifiers in normal times. This paper assesses risk-return profile of the portfolios with and without currencies, using the CVaR optimization. We used daily data from 1.1.2020 to 15.3.2021 on the ten cryptocurrencies and traditional assets and constructed efficient frontiers for the portfolios in question. Our results suggest that cryptocurrencies, even if only naively diversified, improved the risk-return performance of the portfolio during the pandemic.

cryptocurrencies ; portfolio diversification ; conditional value at risk (CVaR) ; efficient frontier ; risk-return profile

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