How are these currencies analyzed? As I understood from the video, the site is analyzing the charts of many currencies, but it will not be correct.
There are news effects, some technological issues, resistance levels, historical barriers and other things.
Is there a guarantee that the predictions will be correct? Credibility? How are risk rates measured?
Hello. Thank you for attention. At the moment, the analysis has implemented a correlation matrix and an efficient frontier, those are mainly mathematical analysis.
Suppose you have a balance on the exchange, say in Binance, you connect it and in the first step coins are loaded.
Next, you select the coins of interest to you, all coins correspond to those available on the Binance exchange.
The next step is the correlation matrix.
The task here is to select non-correlated assets, respectively, the degree of correlation is between -1 and +1.
With an absolute positive correlation, assets will move in one direction, respectively, with a fall, the loss will increase. Of course, there is no absolute correlation, such as -1, when assets move in different directions. But our task at this step is to collect the assets that are least correlated. For example, we add Bitcoin, coins on different blockchains, stablecoins and exchange coins to our portfolio and they can show us not a high correlation. This is not a recommendation for action, but is indicated as an explanatory example. In addition, you see how the degree of correlation varies at different distances, 3 months, 6 months, 1 year or 2a years.
We decided on this step. Next, we move on to the search for the Markowitz efficient frontier. In the mid-twentieth century, the eminent American economist Harry Markowitz developed the “Modern Portfolio Management Theory”, which scientifically explained that (among other things):
1. It is impossible to achieve a high rate of return without risk
2. The increase in high profits is accompanied by a large increase in risk
3. The investment portfolio should be drawn up at the border of efficiency
Markowitz put two parameters at the head of his theory – risk and profitability. An efficient frontier is one that defines the effective set of portfolios on it, respectively, between risk and return. Let’s look at an example:
https://docs.holderlab.io/wp-content/uploads/2019/09/Efficient-Frontier-Portfolio.jpgPortfolio 1 – low return and low risk
Portfolio 2 – high return and high risk
Portfolio 3 – effective portfolio
Portfolio 4 – not effective portfolio
All investment portfolios that are on the border will be effective. With the existing risk, the other portfolio will have lower returns. Therefore, the investor can choose the appropriate risk and select the optimal yield.
So how do we further distribute the weight in the portfolio, maybe 60% in Bitcoin or 10% in the ETH, or will we all distribute proportionally to 10%?
In the optimization module, we start the calculation with 5000 options for possible portfolios and find the optimal one according to the maximum Sharpe ratio. (an indicator of the effectiveness of the investment portfolio (asset), which is calculated as the ratio of the average risk premium to the average deviation of the portfolio)
You choose the distance for portfolio analysis, for example, 2a years, if of course there were already coins in the portfolio. The optimization module calculates and gives you the optimization result for the period in the form of % distribution in coins.
Cons and Pros
Pros
- The method allows you to see the pros and cons of investing, especially in a growing market
- Thanks to the mathematical apparatus, the process of portfolio formation can be brought to automatism
Cons
- If there is a recession in the market, the theory does not work
- There are no clear criteria for entering and exiting the portfolio and there are no forecast methods
Well, we decided on the portfolio and then we can go into the backtest, test it on history and choose a rebalancing strategy. Rebalancing is an old proven strategy; it smoothes out investment returns, forcing us to “sell high” and “buy cheap”, we take profit from our investments and buy falling cryptocurrencies.
https://ic.pics.livejournal.com/fintraining/11748042/313666/313666_original.jpgHolderlab implements instant rebalancing and automatically choosing a period (from 1 hour to a week) or a threshold in%. For example, choosing a threshold of 5%, rebalancing will be carried out if one of the assets has reached this threshold.
Accordingly, the portfolio analysis module by steps in Holderlab looks like this. Sorry for the long text. I will try to answer your other questions. And further tell what other methods we implemented in Holderlab
