Cryptocurrencies and portfolio selection

Given the growing diffusion of cryptocurrencies and the growing interest from both scholars and investors in this emerging asset class, we propose a method to assess the impact of cryptocurrencies on an equity investment universe. our main contribution lies in the analysis methodology. we systematically apply four portfolio selection strategies to randomly chosen investment universes based on different baskets: one consisting solely of equities, and three with varying compositions of equities and cryptocurrencies. we analyze the impact of cryptocurrencies in terms of risk and profitability, quantifying the percentage of assets selected by each applied strategy. An in-sample analysis is performed across three distinct non-overlapping time periods, spanning from 2016 to 2022. our preliminary findings reveal that, in nearly all instances, the inclusion of cryptocurrencies into an equity portfolio results in heightened portfolio risk (volatility and drawdowns). However, this is counterbalanced by a significant increase in its profitability (expected return and Sharpe ratio).