A Study of Optimal Portfolio of Gold and Bitcoin Based on Risk and Return

Abstract

Recently, Digital money is booming, and bitcoin shows potential in the field of investment as a representative of digital currency. According to modern portfolio theory, most of the investors are absolute risk-averter, and a diversified portfolio can effectively reduce the risk. So investors usually combine bitcoin with other assets to reduce non-systemic risks. Therefore, it is of great importance to formulate a feasible portfolio that can make steady returns for investors. For this reason, we build models to find suitable strategy to quantify the proportion of assets invested so that investors can make optimal investment decisions. We measure the return, risk, and efficiency of risk model’s portfolio by sharpe ratio. And based on DEA method, the multi-stage portfolio with V-type transaction cost is evaluated by comparing the portfolio from risk model with the portfolio by applying DEA method, and finally we prove that the strategy is the optimal one. Finally, the advantages and disadvantages of this model are analyzed and summarized.