Cryptocurrencies in equity portfolios: trend or opportunity?

Abstract This study develops a large-scale framework to evaluate whether, and under what conditions, adding cryptocurrencies to equity investment universes improves portfolio performance.We apply four long-only portfolio strategies, Global Minimum Variance, Risk Parity, Most Diversified Portfolio, and Equally Weighted, to 10,000 randomly generated investment universes. These universes consist of baskets containing either only equities or varying combinations of equities and cryptocurrencies. We conduct an out-of-sample analysis on real-world data from 2018 to 2023 to assess the influence of cryptocurrencies on portfolio outcomes. The empirical findings reveal that portfolios constructed from mixed equity and cryptocurrency universes provide a better risk-return profile compared to purely equity-based portfolios, particularly for Risk Parity, Most Diversified, and Equally Weighted.