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Nir Kaissar

How Much Crypto Should Be in Your Investment Portfolio?

No one knows what truly drives digital currency prices, so estimating future returns and volatility is a crapshoot.

All aboard the volatility express.

All aboard the volatility express.

Photographer: Paul Yeung/Bloomberg 

Cryptocurrencies may be all the rage, but good luck figuring out how they fit in a portfolio.   

Money managers generally try to maximize gains and limit losses by estimating the expected risk and return of various investments and then assembling a mix that offers the best trade-off between risk and return. The most widely used measure of risk is volatility, or standard deviation in finance speak. For traditional investments such as stocks and bonds, historical averages are a good gauge of future price swings because volatility tends to hug a tight range over multiyear periods.