https://i.imgsafe.org/f3/f3d36c20b7.jpeg [Image Source](https://shockwaveinnovations.com/2015/08/30/optimizing-demand-generation-using-portfolio-theory) I love cryptocurrencies and [HODL](https://bitcointalk.org/index.php?topic=375643.0), buy, sell and have written about them for independent online newspapers (and now for my fellow Steemians 😊) Equally, I am a student of Economics and Finance and believe in having a Balanced Portfolio of the various asset classes to suit my risk ability and risk tolerance. This post aims to give you a quick overview of an essential financial concept, provide you with links to some excellent websites which have vital data and how this concept can be used in the world of cryptos so that you can maximise your returns while lowering your overall risk. https://i.imgsafe.org/f3/f3db298bd5.jpeg [Image Source](https://blog.wealthfront.com/risk-return) Whenever I hear articles in cryptocurrency magazines urging you to build a diversified portfolio, I notice they never explain how quite to achieve this! This lack of clarity is probably a function of the imperfect availability of information (until recently) required to efficiently create what is known as [Modern Portfolio Theory](https://www.investopedia.com/terms/m/modernportfoliotheory.asp) (MPT) or βMean-Variance Frameworkβ. However, with the collection of data over a longitudinal time period and now publicly accessible through sites such as the [Yahoo Finance Cryptocurrencies Section](https://finance.yahoo.com/cryptocurrencies?guccounter=1) creating an [Efficient Frontier](https://www.investopedia.com/terms/e/efficientfrontier.asp) is now possible with a little elbow grease and the magic of Excel. https://i.imgsafe.org/f3/f3ee651f04.png [Image Source](http://www.peterbilak.com/fonts/history) Quick History of MPT and Efficient Frontier If you have not already clicked on the links and had a review of what these concepts are about, then let me give you a quick overview of what they are and what they are not: NOT: 1) The name Modern Portfolio Theory is misleading as it is far from being Modern. It was introduced by Harry Markowitz a Nobel Prize Winning Economist in 1952. 2) An Efficient Frontier is not a ghost town located somewhere in Nevada! 😊 ARE: 1) Have you heard the saying 'donβt put all your eggs in one basket'? Well, simplistically put that is what MPT is all about. It is all about analysing the risk-return trade-off. It is the crucial model used by Central and Investment banks, Pension funds, during the process of portfolio construction. 2) The Efficient Frontier is the cornerstone of MPT. You can think of it like this: Different cryptocurrencies will produce different returns. Say if you select three cryptos for your portfolio then the Efficient Frontier will represent the best combinations of these three cryptocurrencies. Every point on the Efficient Frontier represents the maximum expected return for a given level of risk. Below is an example of a model of an Efficient Frontier which will provide you with a better insight into this concept and its importance: https://i.imgsafe.org/f2/f22456ed14.jpeg [Image Source](www.investinganswers.com) Before you get into the couple of excellent YouTube tutorials which explain how you can construct and Efficient Frontier using Excel I have posted below, I would recommend you read this recent article by [Coin Telegraph](https://cointelegraph.com/news/how-to-diversify-away-risk-in-a-crypto-portfolio-correlation-and-variance). It is a well written article on risk diversification in a crypto portfolio and will arm you with some key concepts and ideas. After searching YouTube extensively, I found these two videos (Parts 1 and 2) which explain in a very lucid manner how to construct an Efficient Frontier (Albeit he uses stock data. For our purpose use the Yahoo Crypto link provided earlier to substitute and follow the steps). The thing is the videos are not just how to create Efficient Frontier using Excel, but he offers the logic and reasoning behind the use of the MPT and Efficient Frontier which I found most impressive and useful for someone new to the subject matter: Part 1: How to Build Efficient Frontier in Excel <iframe width="560" height="315" src="https://www.youtube.com/embed/jAkgzIqGmaY" frameborder="0" allow="autoplay; encrypted-media" allowfullscreen></iframe> [Video Source](https://www.youtube.com/watch?v=jAkgzIqGmaY) Part 2: How to Build Efficient Frontier in Excel- CAL and Use of Sharpe Ratio <iframe width="560" height="315" src="https://www.youtube.com/embed/CP3pH3Pjz1A" frameborder="0" allow="autoplay; encrypted-media" allowfullscreen></iframe> [Video Source](https://www.youtube.com/watch?v=CP3pH3Pjz1A) Please do leave comments below if you need any further clarification or have any feedback. Next time I look forward to demonstrating how another combination of top-down and then bottom-up portfolio methodologies can be adapted to cryptocurrencies to use your parameters so that you can use readily available online tools and spot crypto opportunities among the approximately 1,600 out there. I have used this technique to spot some new cryptos which I would never have otherwise looked at, and have made me significant gains in under a month. Peace, Shenobie
author | shenobie |
---|---|
permlink | modern-portfolio-theory-for-cryptocurrencies-efficient-frontier |
category | bitcoin |
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<p>This post has received a 0.84 % upvote from @booster thanks to: @shenobie.</p>
author | booster |
---|---|
permlink | re-shenobie-modern-portfolio-theory-for-cryptocurrencies-efficient-frontier-20180509t095054303z |
category | bitcoin |
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<center> Thanks for your support @shenobie! Your contribution is appreciated. To have your post shared with over 10,000 followers send 0.250 SBD or STEEM to @crystalhuman, your post will also be shared to twitter at https://twitter.com/Marketechnologi β Send 1-2 SBD/STEEM for 100-200+ Upvotes. </center>
author | crystalhuman |
---|---|
permlink | re-shenobie-modern-portfolio-theory-for-cryptocurrencies-efficient-frontier-20180509t011343672z |
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nice
author | leyox |
---|---|
permlink | re-shenobie-modern-portfolio-theory-for-cryptocurrencies-efficient-frontier-20180509t230220726z |
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Thank you @leyox. Hope all is good. Cheers, Shenobie
author | shenobie |
---|---|
permlink | re-leyox-re-shenobie-modern-portfolio-theory-for-cryptocurrencies-efficient-frontier-20180510t053939813z |
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I haven't been looking into MPT but have been examining my portfolio closely and trying to find the best way to allocate it. In my overall portfolio I'm treating crypto in a way similar to emerging markets. However, the breakdsown of that small allocation is the hard part.
author | mcdform |
---|---|
permlink | re-shenobie-modern-portfolio-theory-for-cryptocurrencies-efficient-frontier-20180507t043030635z |
category | bitcoin |
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Hi @mcdform I like the way you have compared cryptos to Emerging Markets (EM)! They share similar characteristics as they have high volatility (Std Dev) and differing levels of correlation to traditional assets. The question of allocation is always a difficult one- it is entirely dependent on a personβs risk ability and risk tolerance. However, if you look at Emerging Market Capitalization as a % of World Market Cap, if I remember correctly, it was around 25%. Does this mean we should allocate 25% of our wealth to EM? I guess the answer is not as simple as is the case with cryptos. As we are dealing with a very young and unregulated market, you should consider the following risk factors when considering allocation: Information Asymmetry, Lack of Transparency, Lack of Governance and Liquidity issues (with quite a few cryptos). However, by using MPT, we can combine this new asset class with our traditional mix to enjoy higher returns while lowering the level of overall level risk associated compared with say just owning cryptocurrencies. When generating the Efficient Frontier, you allocate the weights to each of the assets in the portfolio (see video 1), and it will allow you to review the model then choose the best portfolio that gives you the level of return you expect at certain volatility you can handle. The videos are excellent as they teach you how to build an Efficient Frontier and show you the concepts at the same time. Best Regards, Shenobie
author | shenobie |
---|---|
permlink | re-mcdform-re-shenobie-modern-portfolio-theory-for-cryptocurrencies-efficient-frontier-20180507t054200449z |
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author | nahid05 |
---|---|
permlink | re-shenobie-modern-portfolio-theory-for-cryptocurrencies-efficient-frontier-20180509t012959565z |
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Hi @nahid05, Thank you for you kind words and awesome feedback. I look forward to producing more similar posts shortly. Regards, @shenobie
author | shenobie |
---|---|
permlink | re-nahid05-re-shenobie-modern-portfolio-theory-for-cryptocurrencies-efficient-frontier-20180509t073148861z |
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 Sneaky Ninja Attack! You have just been defended with a 1.52% upvote! I was summoned by @shenobie. I have done their bidding and now I will vanish... woosh A portion of the proceeds from your bid was used in support of youarehope and tarc. [Abuse Policy]( https://steemit.com/steemit/@sneaky-ninja/new-sneaky-ninja-abuse-policy-must-read-for-all-users) [Rules]( https://steemit.com/steemit/@sneaky-ninja/sneaky-ninja-reminder-of-rules) [How to use Sneaky Ninja]( https://steemit.com/steemit/@sneaky-ninja/reminder-how-to-use-sneaky-ninja) [How it works]( https://steemit.com/steemit/@sneaky-ninja/sneaky-ninja-reminder-of-how-he-works-vote-worth-usd160-now) [Victim of grumpycat?](https://steemit.com/we-resist/@firedream/resistance-started)
author | sneaky-ninja |
---|---|
permlink | re-shenobie-modern-portfolio-theory-for-cryptocurrencies-efficient-frontier-20180509t122441732z |
category | bitcoin |
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Congratulations @shenobie! You have completed some achievement on Steemit and have been rewarded with new badge(s) : [](http://steemitboard.com/@shenobie) Award for the number of posts published Click on any badge to view your own Board of Honor on SteemitBoard. To support your work, I also upvoted your post! For more information about SteemitBoard, click [here](https://steemit.com/@steemitboard) If you no longer want to receive notifications, reply to this comment with the word `STOP` > Upvote this notification to help all Steemit users. Learn why [here](https://steemit.com/steemitboard/@steemitboard/http-i-cubeupload-com-7ciqeo-png)!
author | steemitboard |
---|---|
permlink | steemitboard-notify-shenobie-20180507t093511000z |
category | bitcoin |
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Congratulations @shenobie! You have completed some achievement on Steemit and have been rewarded with new badge(s) : [](http://steemitboard.com/@shenobie) Award for the number of upvotes received [](http://steemitboard.com/@shenobie) You got your First payout Click on any badge to view your own Board of Honor on SteemitBoard. For more information about SteemitBoard, click [here](https://steemit.com/@steemitboard) If you no longer want to receive notifications, reply to this comment with the word `STOP` > Upvote this notification to help all Steemit users. Learn why [here](https://steemit.com/steemitboard/@steemitboard/http-i-cubeupload-com-7ciqeo-png)!
author | steemitboard |
---|---|
permlink | steemitboard-notify-shenobie-20180507t171123000z |
category | bitcoin |
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Resteem bot Service! Promote Your New Post.Find New Followers - Upvotes. Send 0.400 SBD to @stoneboy and your post url in memo and we will resteem your post to 9500+ followers from two different account.@stoneboy and @vimal-gautam.
author | stoneboy |
---|---|
permlink | re-shenobie-modern-portfolio-theory-for-cryptocurrencies-efficient-frontier-20180509t122410402z |
category | bitcoin |
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Extremely valuabe information. You're in a unique position as it seems to be the rare individual who has a decent understanding of both finance and cryptocurrencies. There is quite a learning curve in all of this and your post eases it quite a bit! Well done, indeed.
author | technoguy |
---|---|
permlink | re-shenobie-modern-portfolio-theory-for-cryptocurrencies-efficient-frontier-20180517t135347240z |
category | bitcoin |
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@technoguy, Thank you for your detailed feedback. It means a great deal to me. Look forward to catching up soon. Shenobie
author | shenobie |
---|---|
permlink | re-technoguy-re-shenobie-modern-portfolio-theory-for-cryptocurrencies-efficient-frontier-20180519t183643824z |
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thats what i need my friend, thanks for article
author | umex |
---|---|
permlink | re-shenobie-modern-portfolio-theory-for-cryptocurrencies-efficient-frontier-20180510t115449266z |
category | bitcoin |
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Finally, someone else discussing MPT! I am going to follow and upvote you. You deserve my resteem, shenobie.
author | zanwaltz |
---|---|
permlink | re-shenobie-modern-portfolio-theory-for-cryptocurrencies-efficient-frontier-20180507t042551176z |
category | bitcoin |
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Hi @zanwaltz, I appreciate your feedback and kind words. I look forward to producing more work that is of interest shortly. Best Regards Shenobie
author | shenobie |
---|---|
permlink | re-zanwaltz-re-shenobie-modern-portfolio-theory-for-cryptocurrencies-efficient-frontier-20180507t054242027z |
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zanwaltz | 0 | 610,832,937 | 100% |
Resteemed!!! brilliant concept
author | zeus2010 |
---|---|
permlink | re-shenobie-modern-portfolio-theory-for-cryptocurrencies-efficient-frontier-20180507t094501794z |
category | bitcoin |
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@zeus2010, I greatly appreciate this! You are a star! Regards, Shenobie
author | shenobie |
---|---|
permlink | re-zeus2010-re-shenobie-modern-portfolio-theory-for-cryptocurrencies-efficient-frontier-20180508t070722657z |
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