Portfolio Management Decision Support System Using Cryptocurrencies and Traditional Assets in Indian Context

The paper attempts to develop a portfolio management decision support system (PMDSS) to help the investors to ensure portfolio optimization in Indian context. For this, the study conducts a comparative analysis between portfolios with equities from Indian market and portfolios that includes cryptocurrencies along with equities. Considering the huge hype received by cryptocurrencies in the current scenario, we attempt to diversify portfolios by including risky assets like cryptocurrencies, specially focusing from Indian perspective. Till now, Portfolio Optimization with Monte Carlo Simulation and Hierarchical Risk Parity has not been implemented by combining portfolios of cryptocurrencies and Indian stocks together. Traditional assets for the study are selected upon their market capitalization, Earnings Per Share, Profit margin, Operating profit etc. and cryptocurrencies are chosen according to their market capitalization. Data on the daily prices of these assets are collected from 2019–20 to 2021–22. An attempt is made to optimize the portfolios by minimizing the portfolio standard deviation and maximizing the portfolio expected returns. This helps to minimize risk and maximize the possible returns that might arise from the portfolio after adjusting for the volatility of the asset classes respectively. Based on the results, we suggest not to incorporate cryptocurrencies in portfolios with Indian stocks. This is because the risk adjusted returns of cryptocurrencies are comparatively lower as compared to the other under study.