Measuring and comparing investment risks for a sample of cryptocurrencies using the Value at Risk (VAR) model and the Conditional Value at Risk (CVAR) model (Growth Leadership Journal)

Summary

• The dataset includes 1,095 daily observations per cryptocurrency, generating a total of 6,570 observations for analysis in EViews.p.11
• The daily return of the sampled cryptocurrency portfolio averaged 0.178468 with a standard deviation of 2.603738.p.11
• At a 95% confidence level, the portfolio Value at Risk (VaR) was -3.91662, while the Conditional Value at Risk (CVaR) stood at -5.69693.p.12
• At a 99% confidence level, the portfolio VaR increased to -6.34135 and the CVaR reached -8.25564.p.12
• Bitcoin was identified as the least risky cryptocurrency in the sample with a 99% CVaR of -7.02498, functioning as a safe haven asset.p.13
• Researchers advise limiting cryptocurrency allocations to no more than 5% of a total diversified investment portfolio.p.15

Key insights

1. Bitcoin demonstrated the lowest risk profile among the analyzed assets, achieving a 99% CVaR of -7.02498.p.13
2. Solana and Dogecoin recorded the highest investment risk levels, with 99% CVaR losses of -13.9994 and -12.72324 respectively.p.13
3. The equally weighted portfolio assigned an investment allocation of approximately 16.67% to each of the 6 sampled cryptocurrencies.p.11
4. Portfolio diversification effectively reduced overall risk, resulting in a 99% CVaR of -8.25564, which is lower than the risk levels of individual high-volatility assets.p.13
5. A Jarque-Bera statistic of 231.0271 confirmed that cryptocurrency daily returns do not follow a normal distribution.p.12
6. Conditional Value at Risk (CVaR) provides a superior estimation of extreme tail losses compared to the traditional Value at Risk (VaR) model.p.14
7. The crypto portfolio experienced a maximum daily return of 11.07932 and a maximum daily loss of -11.1742 over the observed period.p.11