Embark on a journey of strategic crypto investment with Kriptomat’s Risk-Adjusted Strategy, a key facet of our Intelligent Portfolios designed to navigate the often turbulent waters of the cryptocurrency market.
In this strategy, understanding and managing daily price volatility is paramount, ensuring that your investments are not just about growth, but also about stability and risk control. As one of the six unique Intelligent Portfolio strategies offered by Kriptomat, the Risk Adjusted Strategy stands out for its meticulous approach to balancing risk across various assets. It’s tailored for those who seek to optimise their returns while minimising exposure to sudden market fluctuations.
This guide will delve into how the Risk Adjusted Strategy intelligently overweights low-volatility coins and underweights those with higher volatility, achieving a harmonious balance in your crypto portfolio. Ideal for both seasoned investors and newcomers, this strategy embodies a smarter, more calculated approach to crypto investing, where risk management is as crucial as the pursuit of profit.
Understanding Intelligent Portfolios and daily price volatility
Intelligent Portfolios represent a sophisticated approach to modern investing, particularly crucial in the volatile realm of cryptocurrencies. These portfolios employ advanced algorithms and data analytics to dynamically manage assets, adapting to market shifts in real-time.
A key feature of Intelligent Portfolios is their integration of daily price volatility. By analysing the day-to-day fluctuations in asset prices, these portfolios can adjust their holdings to optimise risk management, ensuring a more stable and strategic investment approach.
Daily price volatility is the measure of how much an asset’s price fluctuates within a day and is a vital factor in cryptocurrency investments. This volatility reflects the rapid changes in market sentiment and external influences affecting the crypto market.
Understanding and managing this volatility is essential for risk management. It allows investors to navigate through the market’s ups and downs more effectively, minimising potential losses during high volatility periods, and capitalising on opportunities as they arise. Intelligent Portfolios use this volatility analysis to make informed decisions about asset allocation, aiming to balance the portfolio in a way that aligns with the investor’s risk tolerance and investment goals.
Mechanics behind the Risk Adjusted strategy
Kriptomat’s Risk Adjusted strategy is built on a foundation of principles designed to optimise cryptocurrency investments by carefully managing risk. This strategy is grounded in a few key principles:
Risk equalisation across constituents: At the core of this strategy is the goal of equalising risk across all portfolio constituents. This means that each cryptocurrency in the portfolio contributes equally to the overall risk profile, ensuring that no single asset disproportionately impacts the portfolio’s volatility.
Overweighting low-volatility coins: The strategy prioritises stability by overweighting coins that exhibit lower volatility. This approach is based on the understanding that low-volatility assets can provide more consistent returns while minimising the potential for large, unexpected losses.
Underweighting high-volatility coins: Conversely, the strategy involves underweighting coins with higher volatility. While these assets can offer significant gains, they also come with increased risk. By limiting exposure to these assets, the Risk Adjusted strategy aims to mitigate potential downside risks associated with market fluctuations.
Criteria for cryptocurrency inclusion: The inclusion of a cryptocurrency in the index is based on several criteria. These include market value, liquidity, security and a history of reliable data, ensuring that the assets are stable and well-established in the market. This careful selection process aims to create a diversified portfolio that can withstand market fluctuations and align with the strategy’s risk parity goal.
Rule-based, transparent approach: The strategy operates under a set of defined rules that govern the selection and weighting of cryptocurrencies in the portfolio. This methodical approach ensures decisions are data-driven and unbiased, focused on achieving a balanced risk profile. The transparency of the strategy allows investors to understand the rationale behind portfolio adjustments and the factors influencing asset selection.
Monthly rebalancing process: A key aspect of the Risk Adjusted strategy is its monthly rebalancing, which is crucial for maintaining the intended risk profile of the portfolio. This process involves adjusting the weights of cryptocurrencies based on their recent volatility. Cryptocurrencies that have shown lower volatility may see their weight in the portfolio increase, while those with higher volatility might be reduced in weight.
Overall, Kriptomat’s Risk Adjusted strategy offers a well-thought-out approach for investors who prioritise risk management in their cryptocurrency investments. It combines a detailed analysis of market volatility with a strategic asset allocation model, aiming to deliver consistent performance in varying market conditions.
Benefits and Limitations
The Risk Adjusted strategy from Kriptomat offers several key benefits along with certain limitations, essential for investors to consider:
Benefits:
- Superior Sharpe ratio in bull markets: The strategy tends to achieve a higher Sharpe ratio (a measure used to assess the performance of an investment relative to its risk), indicating better risk-adjusted returns during bull market phases.
- Resilience in bear markets: It demonstrates resilience during bear markets, effectively managing drawdowns and protecting the portfolio from excessive losses.
- Risk parity approach: By equalising risk across all constituents, the strategy maintains a balanced exposure, reducing the impact of market volatility.
- Automated and systematic method: The strategy employs a systematic and transparent rule-based method, ensuring a disciplined and unbiased investment process.
- Simplicity and accessibility: The strategy stands out for its ease and straightforwardness, ideal for investors who prefer a simple, direct approach. It streamlines the investment process by cutting through the clutter of numerous cryptocurrency choices, offering a more accessible and efficient experience.
Limitations:
- Susceptibility to coin-specific shocks: Despite a balanced risk approach, the portfolio can still be vulnerable to sudden, coin-specific market events or shocks.
- Potential underperformance in rapidly rising markets: In markets that rapidly rise, the strategy’s focus on low-volatility assets might lead to underperformance compared to more aggressive portfolios.
In summary, Kriptomat’s Risk Adjusted strategy offers a methodical approach to managing crypto investments, balancing the potential for gains with the mitigation of risks. It is well-suited for investors who prioritise steady, risk-adjusted returns, but also requires awareness of its limitations in specific market scenarios.
Current portfolio allocation (November 2023)
This index consists of the 10 biggest crypto assets by market cap – excluding stablecoins – uniquely allocated based on daily price volatility. Less volatile assets receive a larger share of the portfolio each month, while more volatile ones are allocated less. This strategy amplifies the influence of more stable assets and minimises the impact of higher volatility, ensuring a more balanced portfolio performance.
As of November 2023, here is the current allocation of Kriptomat’s Capture Movers portfolio:
| Cryptocurrency | Allocation (%) |
|---|---|
| Binance Coin (BNB) | 14.63% |
| TRON (TRX) | 14.48% |
| Ethereum (ETH) | 11.63% |
| Litecoin (LTC) | 10.73% |
| XRP (XRP) | 9.49% |
| Cardano (ADA) | 9.43% |
| Bitcoin (BTC) | 8.93% |
| Dogecoin (DOGE) | 8.52% |
| Polygon (MATIC) | 7.83% |
| Solana (SOL) | 4.35% |
Strategy performance
Along with the Capture Movers strategy, the Risk Adjusted strategy is one of Kriptomat’s best performing Intelligent Portfolios.
The Risk Adjusted strategy offered by Kriptomat exhibits a performance profile that, while loosely correlated with Bitcoin, significantly outperforms it. As of the latest data up to November 2023, the impressive performance metrics are:
- 6 Months: +29.38%
- 1 Year: +68.69%
- 3 Years: +2027.23%
- 5 Years: +4072.54%
These results highlight the strategy’s effectiveness in leveraging risk management to achieve superior returns, especially over the longer term. Its focus on adjusting portfolio weights based on daily price volatility has enabled it to capitalise on market trends more efficiently than Bitcoin, leading to substantially higher returns. However, it’s important to remember that past performance is not a definitive indicator of future results, especially in the volatile and rapidly evolving cryptocurrency market.
Who is this strategy for?
The Risk Adjusted strategy from Kriptomat is specifically designed for a certain type of investor, one who places a high priority on risk management in their investment approach.
Risk-averse investors: Ideal for those who prefer a cautious investment style, focusing on stability and risk control over aggressive growth.
Long-term investors: Well-suited for individuals looking for sustainable growth with a balanced approach, willing to forgo rapid gains for steady, risk-adjusted returns over time.
Analytical investors: Appeals to those who appreciate a data-driven, methodical approach to investing, valuing the strategy’s reliance on quantitative analysis and regular rebalancing.
Diversified portfolio seekers: Fits investors aiming to diversify their investment across a range of assets while maintaining a consistent risk level across the portfolio.
In essence, the Risk Adjusted strategy is tailored for investors who value a balanced, cautious approach to cryptocurrency investing, emphasising risk management and stability in their portfolio.
To begin investing in the Capture Movers strategy, explore our detailed tutorial “Kriptomat’s Byte-Sized Guide to Intelligent Portfolios: Navigating the Future of Crypto Investments”.
It will provide you with a step-by-step walkthrough of the entire process, helping you get started seamlessly.
The bottom line
The Risk Adjusted strategy, a pivotal offering in Kriptomat’s suite of Intelligent Portfolios, exemplifies a sophisticated approach to cryptocurrency investing, where risk management is as crucial as the pursuit of returns.
By focusing on balancing portfolio weights based on daily price volatility, the strategy adeptly navigates the inherent unpredictability of the crypto market. Its performance, notably outpacing Bitcoin while maintaining a loosely correlated relationship, demonstrates the effectiveness of a strategy that prioritises stability alongside growth.
This underscores Kriptomat’s dedication to providing a range of intelligent portfolio choices, designed to meet the different needs and objectives of various investors. Sign up for a Kriptomat account and revolutionise your approach to crypto investing with our Intelligent Portfolios – embark on a smarter investment path today.
Further reading
We invite you to learn more about Kriptomat’s Intelligent Portfolios and discover other strategies in the following articles:
- Invest Smarter: How to Optimise Your Crypto Assets with Kriptomat’s Intelligent Portfolios
- Unlock DeFi Potential Through Kriptomat’s Intelligent Portfolios
- Leverage the Power of Smart Contracts with Kriptomat’s Intelligent Portfolios
- Maximise Investment Efficiency with Kriptomat’s Equal Weight Intelligent Strategy
- Profit from Momentum with Intelligent Portfolios: Inside Kriptomat’s Capture Movers Strategy
- The Big Ten: Kriptomat’s Intelligent Portfolio Strategy for Top Market Cap Cryptocurrencies
NOTE
This text is informative in nature and should not be considered an investment recommendation. It does not express the personal opinion of the author or service. Any investment or trading is risky, and past returns are not a guarantee of future returns. Risk only assets that you are willing to lose.
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