A Portfolio Study Based on the Markowitz Model - An Example of the Bitcoin Market

Abstract

Nowadays, financial markets are becoming more and more complex, and new portfolios need to be built to cope with them. This paper aims to build a Markowitz model for portfolio research based on new calibrations for nine different industries. Firstly, the weights and minimum variance combinations are calculated by using valid information such as mean, standard deviation, variance, and covariance. Second, this paper aims to maximize the return of the portfolio, diversify the investment risk of the selected portfolio, and finally determine the optimal portfolio. The portfolio can be adjusted to reduce risk or increase return by adjusting the percentage of Bitcoin. This paper further explores the portfolio using Bitcoin as a variable. This paper derives the volatility and return of the least risky portfolio to be 11.04% and -0.46%, respectively, when the portfolio is calibrated without Bitcoin, and the volatility and return of its Sharpe optimal portfolio are 14.61% and 7.11%, respectively. When the portfolio contains Bitcoin, the volatility and return of its risk-minimal portfolio are 9.45% and 0.6%, respectively, and the volatility and return of its Sharpe-optimal portfolio are 16.31% and 37.35%, respectively. Ultimately, it is concluded that Bitcoin has some risk-reducing and return-enhancing effects.