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Shimira_65941800_2021.pdf
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- The main question of this thesis is to know the diversification effect of cryptocurrencies. The goal is to determine if it is a good idea/ beneficial to incorporate any cryptocurrency into a portfolio containing standard assets such as indexes. Through performance analysis and DCC-GARCH estimations, I aspire to exhibit which cryptocurrency can better reduce risk among traditional portfolios. The present work examines daily returns, volatility, and correlations of five cryptocurrencies along with six traditional assets from January 19th, 2018, to July 29th, 2020. The main results show that GOLD is the only asset among the studied assets that outperformed the market given the risk undertaken. Besides, GOLD can be used to hedge against CAC40, SP500, and MSCIWOLRD, according to the negative correlation with them. However, cryptocurrencies have, in general, less good risk-adjusted return measures than standard financial assets. Regarding the DCC-GARCH correlation estimations, the results show that the lowest correlation value is 0,0740 for GOLD-Ehereum Classic. This combination has the best potential to reduce portfolio risk. These results are interesting for investors who want to include cryptocurrencies into a portfolio with GOLD and the three indexes and reduce the portfolio risk.