How to allocate the cryptocurrency that people love and fear: keep this ratio in mind

Sharpe ratio, also known as Sharpe index, a standardized indicator for fund performance evaluation. The Sharpe ratio has been studied in modern investment theory showing that the magnitude of risk plays a fundamental role in determining the performance of a portfolio. The risk-adjusted return is a composite indicator that takes into account both return and risk, and is able to exclude the negative impact of risk factors on performance evaluation in the long run. The Sharpe ratio is one of the three classical indicators that can simultaneously take into account both return and risk.

It is a common feature of investments that the higher the expected return of the underlying, the higher the risk of volatility the investor can tolerate; conversely, the lower the expected return, the lower the risk of volatility. Therefore, the main objective of a rational investor in choosing an underlying and portfolio is to seek the maximum reward for a fixed amount of risk, or the minimum risk for a fixed expected reward.

Wells Fargo describes cryptocurrencies as alternative investments, saying that as they become more popular, it is critical to understand the potential risks and opportunities associated with them.