Cryptocurrency Allocations and Risk: How Much is Enough? - A New FinMason Report

BOSTON, Sept. 7, 2023 /PRNewswire/ -- With cryptocurrencies here to stay, mainstream wealth management firms are adding or considering adding cryptos to their portfolios and platforms. To date though, little consideration has been given to how well these assets fit into a traditional investment portfolio in terms of risk, diversification and returns. To create a framework to consider this issue, FinMason President and Chief Analytics Officer Philip Taylor, CFA, used FinMason's cloud-based calculation engine to show how to analyze a traditional investment portfolio with the addition of cryptocurrency. FinMason is a leading investment data and analytics firm.

Taylor used one of the largest "Moderate Allocation" ETFs as a proxy for a well-diversified traditional portfolio, used Bitcoin as a proxy for cryptocurrencies and used a large S&P500 index ETF as a proxy for U.S. Equities.

With these inputs, Taylor used FinMason's calculation engine to review a variety of allocation, risk and return scenarios.

For instance, a portfolio of 59% Moderate ETF and 41% Bitcoin had the highest 10-year Sharpe Ratio of 1.06, but is a highly risky portfolio, with an annual 10-year volatility of 32.0%. This is more than double the amount of risk as the S&P 500 index, which had a 10-year volatility of 14.9%. On the other hand, a portfolio of 15% Bitcoin and 85% of the moderate allocation ETF produced a Sharp Ratio of 1.02, with the same risk as the S&P 500. Not only does it have the same risk as the S&P 500, but it had a far smaller "drawdown" of -27.3% vs -50.9% for the S&P 500.

"Whenever investment opportunities arise and enter the mainstream, it's important for investment professionals to assess their fitness for inclusion in their portfolios," said Taylor. "FinMason offers those tools via our easy-to-use, scalable and efficient solutions for all types of financial firms."

To read the full report, please click here https://www.finmason.com/media/news/2023/09/05/cryptocurrency-allocations-and-risk-how-much-is-enough-.

About FinMason

FinMason was founded by experienced industry insiders and leading technologists who have managed institutional portfolios, built and managed performance, risk, and analytics systems for large institutions, and built and sold large technology companies. FinMason solves the two largest hurdles in investment analysis – wrangling market data and calculating analytics at scale. Via FinMason's cloud-native API the company provides a lightning-fast, customizable, calculation engine to accelerate any wealth technology build out. For more information about FinMason, visit www.finmason.com or email [email protected].

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SOURCE FinMason