Regression-Based Benchmarks are analytical tools used to evaluate the performance of an investment strategy or asset manager by comparing its returns against a customized benchmark derived through statistical regression. In crypto investing, these benchmarks quantify the extent to which a portfolio’s returns are explained by exposure to various market factors or digital asset indices.
Mechanism
This approach involves regressing the portfolio’s historical returns against the returns of a selected set of market factors or traditional and crypto-specific indices. The resulting regression coefficients indicate the portfolio’s sensitivity to each factor, while the intercept (alpha) measures the portion of returns not explained by these systematic exposures, providing an assessment of active management.
Methodology
Investment analysts and asset managers utilize regression-based benchmarks to perform robust performance attribution, disentangling active management skill from passive market exposure. This methodology offers a nuanced assessment than simple index tracking, providing insights into the drivers of returns and risks within diverse crypto portfolios and supporting informed investment decisions.
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