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

Comparison: The significantly higher returns are accompanied by only slightly higher volatility, resulting in a more efficient portfolio. Interestingly, the correlation with the Russell 2000 Index dropped by 20 points, suggesting that the addition of cryptocurrencies also improved overall portfolio diversification.

Allocation to 10% cryptocurrencies: The 90% hedge fund allocation coupled with the 10% cryptocurrency allocation resulted in a further decline in correlation with the Russell 2000, with a further increase in annualized returns accompanied by a higher annualized standard deviation. However the maximum decline was even greater and the improvement in Sharpe ratio was minimal.

Allocation 10 over % cryptocurrency: An allocation of over 10% to cryptocurrency, again in the context of the overall hedge fund portfolio, witnessed a deterioration in the Sharpe ratio, especially as a larger cryptocurrency allocation would expose the portfolio to relatively higher cryptocurrency volatility and greater drawdown scenarios.