Abstract
Virtual currency represents a specific technological innovation on financial markets. Bitcoin and other cryptocurrencies are popular alternatives to traditional cash and investment. We indicate a research gap in the literature review. We find out that current research focused rarely on portfolio diversification using bibliographic analysis in VOSviewer. We think that portfolio diversification is extremely important on the crypto market for most investors because virtual currencies are very risky compared to traditional assets. The primary aim is to construct an optimal portfolio consisting of several cryptocurrencies without traditional assets using a modern theory portfolio. The total sample consists of 16 virtual currencies from 1 October 2017 to 13 January 2020. We mainly obtain historical data on the daily close price of cryptocurrencies from Yahoo Finance. The results show that the optimal portfolio using Markowitz approach consists of Cardano, Binance Coin, and Bitcoin. In addition, virtual currencies are moderately Correlated, with the exception of Tether based on correlation analysis. The high correlation is dangerous for cryptocurrency in portfolio diversification. However, Tether is an atypical virtual currency compared to other cryptocurrencies.
Highlights
Risk and Financial Management 14: 160.These days research on portfolio diversification has focused on the cryptocurrency market
We found out that the total number of articles on portfolio diversification focused on virtual currencies in the field of business economics, business, and finance is 28 using bibliographic data from the renowned Web of Science database from 2010 to 2020
The results show that a diversified portfolio based on an advanced model achieves excellent returns at low risk
Summary
These days research on portfolio diversification has focused on the cryptocurrency market. We found out that day-to-day research concentrates mainly on a portfolio consisting of traditional and alternative assets together. We found out that the total number of articles on portfolio diversification focused on virtual currencies in the field of business economics, business, and finance is 28 using bibliographic data from the renowned Web of Science database from 2010 to 2020. This total number of publications was determined based on the fifth criteria, namely, keywords (portfolio, diversification, and cryptocurrencies), time period
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