Evaluating the Role of Virtual Digital Assets in Diversifying Investment Portfolios

Cryptocurrencies have emerged as the new type of assets that recently became popular in the financial markets. This paper focuses on the effects of virtual digital assets on investment portfolios. Using MPT as a theoretical framework, the research analyzes how the digital assets impact portfolio risk, return, and diversification. Its distinguishing features are decentralization, non-correlation with conventional financial instruments and relative high incidence. These features give portfolio optimization a new angle in diversification which would eliminate general risks and also improve possible gains especially for high risk takers. It is evident from the results that investment in cryptocurrencies leads to enhancement of the Sharpe ratios, and reduced portfolio standard deviations in diversified investment portfolios. Objective is to study the impact of virtual digital asset in investment portfolio. How it affects the risk and return in a diversified portfolio.