- CFA Exams
- 2024 Level I
- Topic 9. Alternative Investments
- Learning Module 7. Introduction to Digital Assets
- Subject 4. Digital Asset Investment Risk, Return, and Diversification
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Subject 4. Digital Asset Investment Risk, Return, and Diversification PDF Download
Digital asset investments, like any other investment, come with their own set of risks, return potential, and the potential for diversification benefits.
Risk: Digital assets, especially cryptocurrencies, are known for their high price volatility. Other risks include market risk, regulatory risk and security risk.
Potential for High Returns. Digital assets have demonstrated the potential for significant returns over relatively short periods.
Diversification. Digital assets, particularly cryptocurrencies, have shown low correlation with traditional asset classes such as stocks and bonds. This low correlation suggests that digital assets can provide diversification benefits to a traditional investment portfolio.
Adding digital assets to a diversified portfolio can help mitigate risks associated with specific industries or regions, as the digital asset market operates globally and is not limited by geographical boundaries.
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