Can Cryptocurrencies Improve Portfolio Performance? An Empirical Analysis

Abstract

This thesis investigates whether the inclusion of cryptocurrencies (CCs) enhances the performance of investment portfolios. Motivated by the growing role of CCs in financial markets and their potential as diversifiers, this thesis examines the impact of their addition on portfolio performance. Several portfolio optimization strategies are employed to evaluate the effect of CCs on risk-adjusted returns, as measured by the Sharpe ratio and CAPM-based alpha, across both in-sample and out-of-sample periods. The results indicate that portfolios including CCs generally achieve superior performance, particularly under the Naïve strategy, which consistently yields a high Sharpe ratio and alpha value. Additionally, the weak correlation between CCs and traditional assets supports their role as diversification tools. Overall, the findings suggest that CCs can improve portfolio performance under various optimization frameworks.