Cryptocurrencies are the most current means of investing money in the current digital era,
especially because of their accessibility. But as with any funds, investing is harder than we first imagine.
If we want to make a successful investment, we have to use proven methods of investment.
We roughly divide investing into two parts: Strategy and Tactics. For the strategical part, we will implement a portfolio optimisation method, based on the Sharpe ratio and Sortino ratio.
For the tactical part, we will use the ARIMA+GARCH method for price and trading forecasting.
We will test the method via a Backtest. The strategy is successful, if it is more profitable and less volatile than a buy & hold method on Bitcoin. We uncovered, that both Strategy and Tactics make our strategy more profitable. The profits are about 2,27 times that of the buy & hold method on Bitcoin in our testing period. The tactical part of the strategy provides less volatility relative to Bitcoin. Volatility is about 8 % lower relative to the buy & hold method on Bitcoin, despite the strategical part of our trading strategy increasing volatility by 14 % relative to Bitcoin.
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