Efficient Frontier in Portfolios Containing Stock Market and Financial Digital Assets
Efficient Frontier in Portfolios Containing Stock Market and Financial Digital Assets

Summary/Abstract: The traditional finance infrastructure has been adapting and evolving with great speed in the last decade, due to the advancement of technologies and the performance of alternative financial models. The paradigm shift that was presented due to the innovative models of financial digital assets, within the spectrum of Decentralized Finance (DeFi), has pushed investment portfolio structures to a new level of complexity, as they integrated the space of alternative investments and took a deep dive into an unregulated environment that presents new opportunities and challenges. The risk associated to these new assets is directly proportional with the returns and opportunities that arise from such complex structures. Fund managers and financial analysists are always embracing novel technologies that optimize, enhance and improve the way financial instruments perform and hedge for the best outcome. The space of financial digital assets introduced new variables for liquidity and volatility along with the connection to new possibilities of diversification in a decentralized environment. This paper will analyze an innovative approach of a portfolio construction that is composed of stock market and financial digital assets. We will be assessing the Return on Investment (ROI) in the context of combining high volatility crypto assets with a traditional stocks portfolio, in order to identify the best opportunities that present themselves in this hybrid scenario. The aim of this paper is to explore the balance between returns and risk management by means of an efficient frontier model. We will provide an in-depth analysis for the best performing portfolio taking in consideration volatility and market capitalization of the assets used in this study.

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