In a recent statement, HSBC, one of the world’s largest banking and financial services institutions, advocated giving cryptocurrencies a 1-5% weight in a diversified portfolio.
HSBC is conducting extensive research into the role cryptocurrencies can play in multi-asset allocations. The bank ran millions of simulations on dollar-denominated portfolios, each changing the weights of the asset basket. The results have consistently shown that even a small exposure to cryptocurrencies can increase portfolio diversification.
The bank first explored the potential of cryptocurrencies in multi-asset allocations two years ago. At the time, they found strong statistical evidence that an allocation to cryptocurrencies could help diversify multi-asset allocations. This finding appears to remain valid today.
After re-running millions of portfolio simulations using a new data sample, HSBC reached very similar results. The bank argues that allocating a small allocation of 1-5% to cryptocurrencies can significantly increase portfolio diversification.
*This is not investment advice.