Portfolio diversification using cryptocurrencies: An empirical study of 4 cryptocurrencies between 2014 and 2021

Using descriptive statistics, correlation analysis as well as portfolio integration, we highlight the unique characteristics of cryptocurrencies. The risk/return trade-off of cryptocurrencies is much higher than that of traditional assets. Correlations with other traditional assets are rare and insignificant. Efficient frontiers containing cryptocurrencies largely dominate those without. We conclude that cryptocurrencies have the power to diversify but warn against the extreme risks they may represent and the insufficiency of mean-variance analysis to characterise them.