Portable Alpha in crypto investing refers to an investment strategy that separates the generation of alpha (excess return relative to a benchmark) from its associated market beta (systematic market risk). This enables investors to generate alpha from digital assets or strategies and combine it with desired market exposure, potentially from traditional assets, without directly owning the underlying alpha-generating assets.
Mechanism
This strategy typically operates by using derivatives, such as futures or options on a broad market index (traditional or crypto), to gain market exposure (beta), while simultaneously employing an active strategy in a separate digital asset portfolio to generate alpha. The alpha component is transferable because it can be combined with different beta exposures using these derivative instruments.
Methodology
Implementing portable alpha in crypto requires sophisticated portfolio construction and risk management techniques. It involves isolating the alpha component from specific digital asset trading strategies, hedging out the beta, and then adding a desired market beta via a separate, efficient instrument. This methodology allows institutional investors to diversify their alpha sources and optimize their overall portfolio’s risk-return profile across both traditional and crypto markets.
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