Impact of Crypto Assets as Risk Diversifiers: A VAR-based Analysis of Portfolio Risk Reduction


  • Muhammad Nadeem Assistant director, Human Resource, Minhaj University Lahore, Pakistan Author
  • Arfan Shahzad Independent Researcher Author
  • Yasmin Anwar Independent Researcher Author



Portfolio risk, crypto assets, Bitcoin, ETH, Granger causality test, VAR, IRF


This research aims to empirically investigate the portfolio risk associated with crypto assets. In other words, we want to investigate whether the inclusion of crypto assets in a portfolio can minimize the portfolio risk or not, because it is argued that there is a lower degree of correlation between crypto assets and traditional assets. In order to achieve our research objectives, we employ the Vector Autoregressive Model (VAR) by using five different asset classes. The first two variables are taken from the crypto assets, Bitcoin and Ethereum, and the remaining three variables for Gold, Crude Oil and VIX (Chicago Board Options Exchange's (CBOE) volatility index).  Our research strategy will be based on an analysis for unit root, optimal lag selection, coefficient matrix, checking VAR stability, the Granger causality test, and impulse response function (IRF). Our findings suggest that none of the indicators of traditional assets drive and explain Bitcoin. We also found that only Bitcoin is significantly related to Ethereum. while none of the other variables are statistically useful to explain the variation in the Ethereum. Based on these findings it can be recommended that the inclusion of crypto assets into a portfolio reduces risk because none of the indicators of crypto assets are significantly related to the indicators of traditional assets.


Ali, M., Shair, W., ur Rahman, F., & Naeem, S. (2021). The Relationship between Cash Flow Volatility and Dividend Payout Ratio: Evidence from Pakistan’s Non-Financial Firms. Empirical Economic Review, 4(2), 32-48.

Aliu, F., Bajra, U., & Preniqi, N. (2021). Analysis of diversification benefits for cryptocurrency portfolios before and during the COVID-19 pandemic. Studies in Economics and Finance.

Aliu, F., Nuhiu, A., Krasniqi, B. A., & Jusufi, G. (2021). Modeling the optimal diversification opportunities: the case of crypto portfolios and equity portfolios. Studies in Economics and Finance.

Bakry, W., Rashid, A., Al-Mohamad, S., & El-Kanj, N. (2021). Bitcoin and Portfolio Diversification: A Portfolio Optimization Approach. Journal of Risk and Financial Management, 14(7), 282.

Board, F. S. (2022). Assessment of Risks to Financial Stability from Crypto-Assets.

Chemkha, R., BenSaïda, A., Ghorbel, A., & Tayachi, T. (2021). Hedge and safe haven properties during COVID-19: Evidence from Bitcoin and gold. The Quarterly Review of Economics and Finance, 82, 71-85.

Demertzis, & Wolff, M. (2018). The economic potential and risks of crypto assets: is a regulatory framework needed.

Grider, D (2022). The postmodern portfolio Crypto allocation thesis. Grayscale Research

Grider, D., Maximo, M., & Zhao, M. (2022). The Postmodern Portfolio. Grayscale Research.

Li, J., & Yi, G. (2019). Toward a factor structure in crypto asset returns. The Journal of Alternative Investments, 21(4), 56-66.

Reiff, N. (2020, 3 12). What are the Legal Risks to Cryptocurrency Investors? Retrieved from Investopedia.:

Risman, Mulyana, Silvatika, & Sulaeman, A. (2021). The effect of digital finance on financial stability. Management Science Letters, 979-1984.

Shair, W., Ahmad, N., Tayyab, M., & Ishaq, I. (2023). Effect of Economic Policy Uncertainty on Exchange Rate Volatility in Pakistan. Bulletin of Business and Economics (BBE), 12(4), 33-44.

Shair, W., Naeem, S., & Rasul, F. (2021). Nexus of Covid-19 news with stock market returns and volatility in Pakistan. Bulletin of Business and Economics (BBE), 10(2), 92-99.

Sulehri, F. A., Ahmed, M., & Ali, A. (2022). Proprietorship Structure and Firm Performance in the Context of Tunneling: An Empirical Analysis of Non-Financial Firms in Pakistan. Journal of Policy Research, 8(4), 115-124.

Sulehri, F. A., Khan, H. M. A., Shahzad, M., & Ali, A. (2023). Beyond the Balance Sheet: Analyzing the Relationship between Corporate Governance, Financial Performance, and Stock Prices in Pakistan's Non-Bank Financial Industry. Bulletin of Business and Economics (BBE), 12(4), 88-95.







How to Cite

Nadeem, M. ., Shahzad, A. ., & Anwar, Y. . (2024). Impact of Crypto Assets as Risk Diversifiers: A VAR-based Analysis of Portfolio Risk Reduction. Bulletin of Business and Economics (BBE), 13(1).

Similar Articles

1-10 of 149

You may also start an advanced similarity search for this article.