Optimization and Diversification of Cryptocurrency Portfolios: A Composite Copula-Based Approach
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 cryptocurrenc...
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MDPI AG
2022-06-01
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Series: | Applied Sciences |
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Online Access: | https://www.mdpi.com/2076-3417/12/13/6408 |
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author | Herve M. Tenkam Jules C. Mba Sutene M. Mwambi |
author_facet | Herve M. Tenkam Jules C. Mba Sutene M. Mwambi |
author_sort | Herve M. Tenkam |
collection | DOAJ |
description | 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 stablecoins 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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format | Article |
id | doaj.art-594d799e37fe49968fc3faffb88e0617 |
institution | Directory Open Access Journal |
issn | 2076-3417 |
language | English |
last_indexed | 2024-03-09T22:08:23Z |
publishDate | 2022-06-01 |
publisher | MDPI AG |
record_format | Article |
series | Applied Sciences |
spelling | doaj.art-594d799e37fe49968fc3faffb88e06172023-11-23T19:36:08ZengMDPI AGApplied Sciences2076-34172022-06-011213640810.3390/app12136408Optimization and Diversification of Cryptocurrency Portfolios: A Composite Copula-Based ApproachHerve M. Tenkam0Jules C. Mba1Sutene M. Mwambi2Department of Mathematics and Applied Mathematics, North West University, P.O. Box 209, Potchefstroom 2520, South AfricaSchool of Economics, University of Johannesburg, P.O. Box 524, Auckland Park 2006, South AfricaSchool of Economics, University of Johannesburg, P.O. Box 524, Auckland Park 2006, South AfricaThis 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 stablecoins 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.https://www.mdpi.com/2076-3417/12/13/6408multivariate t-copulaCVaRdifferential evolution algorithmK-means clusteringvine copulacryptocurrency |
spellingShingle | Herve M. Tenkam Jules C. Mba Sutene M. Mwambi Optimization and Diversification of Cryptocurrency Portfolios: A Composite Copula-Based Approach Applied Sciences multivariate t-copula CVaR differential evolution algorithm K-means clustering vine copula cryptocurrency |
title | Optimization and Diversification of Cryptocurrency Portfolios: A Composite Copula-Based Approach |
title_full | Optimization and Diversification of Cryptocurrency Portfolios: A Composite Copula-Based Approach |
title_fullStr | Optimization and Diversification of Cryptocurrency Portfolios: A Composite Copula-Based Approach |
title_full_unstemmed | Optimization and Diversification of Cryptocurrency Portfolios: A Composite Copula-Based Approach |
title_short | Optimization and Diversification of Cryptocurrency Portfolios: A Composite Copula-Based Approach |
title_sort | optimization and diversification of cryptocurrency portfolios a composite copula based approach |
topic | multivariate t-copula CVaR differential evolution algorithm K-means clustering vine copula cryptocurrency |
url | https://www.mdpi.com/2076-3417/12/13/6408 |
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