THE IMPACT OF DIVERSIFICATION IN TRADITIONAL AND DIGITAL FINANCIAL TOOLS ON REDUCING RISKS AND IMPROVING RETURNS OF THE INVESTMENT PORTFOLIO

Abstract

The purpose of this study is to find out the impact of traditional financial tools and digital tools on the investment portfolio’s risk and return in United State American financial market. It examined which portfolio can be an optimal portfolio when compared to two other portfolios, where first portfolio consist of traditional financial tools, second one is formed from digital tools or crypto currency, and the third one is the combination of both mentioned portfolios. The sample is taken from traditional financial tools (oil index, gold index, dollar index, and S&P 500 index), and digital tools or crypto currency (Bitcoin, Ethereum, and Ripple). The daily secondary data is taken from August 7,2015, to January 31, 2021. Sharp ratio was applied three times for each portfolio separately to extract logical findings by using solver subprogram of excel, further stepwise regression equation is utilized for dependent and independent variables, as a statistical analysis with the help of spss program. This study determines that the traditional financial tools and digital tools have a significant impact on the risk and return of the investment portfolio, and after comparing the three investment portfolios the study concludes that the combination of traditional financial tools and digital tools will achieve the optimal portfolio.

Keywords

• Diversification
• Traditional financial tools
• Digital tools
• Optimal portfolio
• Risk and return

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