What are the limitations of using the Sharpe ratio in the analysis of cryptocurrency portfolios?

1 answers

• Nov 26, 2021 · 3 years ago
  The Sharpe ratio is a widely used metric for measuring risk-adjusted return in traditional financial markets. However, when it comes to analyzing cryptocurrency portfolios, the Sharpe ratio has its limitations. Cryptocurrencies are known for their high volatility and non-normal return distributions, which can make the assumption of normality underlying the Sharpe ratio invalid. Additionally, the Sharpe ratio does not account for the unique risks associated with cryptocurrencies, such as regulatory uncertainty and market manipulation. Therefore, while the Sharpe ratio can provide some insights into the risk-adjusted return of cryptocurrency portfolios, it should be used in conjunction with other risk measures and factors specific to the cryptocurrency market to obtain a more comprehensive analysis.
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