With about 800 crypto funds relying on a new asset class, which has its own properties, it is essential to assess them through an appropriate framework. We provide a basic framework of useful metrics to assess the true risk of a crypto fund as a quantitative screening tool. Short-listed funds can then be assessed in more detail through a classic due diligence process.
Assessing the expected return of a directional fund
Investors in a directional fund should first have a clear understanding of the dynamic of the fund’s overall strategy in order to realize where the performance will come from and over what period before assessing whether the risk taken to achieve such results is worth it. This is achieved through discussions with the fund manager.
Understanding the fundamentals of the strategy
Understanding the strategy timeframe
A nonlinear analysis framework
4. Value at Risk
- A crypto fund with overall high volatility doesn’t necessarily equate to a highly risky one.
- A high global correlation of a crypto fund to a benchmark doesn’t necessarily mean that the fund will move in sync with the benchmark most of the time.
- The global beta of a crypto fund has no value unless it is assessed in a nonlinear manner.
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