Question

You are planning to construct a portfolio made up of a broad market index (S&P 500) and a cryptocurrency. Four major cryptocurrencies are available in the market and they are BTC (Bitcoin), ETH (Ether), XRP (Ripple), and LTC (Litecoin). Use Table 1 and Table 2 to answer the following questions:

1. Which of these are suitable for adding to the index for diversification purposes and why? (10 points)
2. If they all are mutually exclusive (only one can be selected) then which one will you select and why? (10 points)

Table 1

	Covariance
	BTC	ETH	XRP	LTC
S&P 500	-0.00832	-0.00459	-0.005	-0.0064

Table 2

	Std. Deviation of Returns
S&P 500	12%
BTC	32%
ETH	8%
XRP	11%
LTC	17%

Answer 1