Research on suitability of investment portfolio hedging using Bitcoin cryptocurrency

Abstract

With the development of technology and increasing opportunities to access more and more diferent financial information, independent investment and the creation of investment portfolios are becoming more popular in modern society. Various portfolio hedging strategies aimed at reducing investment portfolio risk are becoming an integral part of investment portfolio formation. One of the possible ways of portfolio risk minimazation is to include Bitcoin cryptocurrency in the investment portfolio. This article focuses on hedging the equity portfolio against investment risk. The aim of the article is to determine whether Bitcoin cryptocurrency is a suitable financial instrument to reduce investment portfolio risk based on theoretical aspects of investment, investment portfolio formation and diversification. Harry Markowitz portfolio formation model was chosen to create the portfolios. The risk and return characteristics of the formed portfolios and the values of the Sharpe ratio were assessed. The investigation showed that the inclusion of Bitcoin cryptocurrency in the investment portfolio could reduce the investment risk of the portfolio.