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Simulation to find the best risk-adjusted-return (Sharpe Ratio) portfolio. Each point represents a portfolio, made with a certain coins composition (weights).

The y-axis shows the expected return for a portfolio while the x-axis shows the volatility for it. An expected return of 1.0 means a return of 100% annually. The Expected Returns are based on historical returns so the coins on the simulation require a long price history to create relevant results.

The chart also includes the Efficient Frontier in green when more than two assets are selected. Portfolios that lie on the Efficient Frontier maximize the Expected Return for a given volatility. Every portfolio below the Efficient Frontier can be regarded as a sub-optimal portfolio; for the same volatility you are expecting less returns.

The Sharpe Ratio is the ratio of the expected return and the volatility. The highest Sharpe ratio for a given composition therefore gives the highest expected return for the least amount of volatility. This point is highlighted with a bigger size and a dark green color on the chart.

The Sortino Ratio is very similar to the sharpe ratio but only takes into account downside volatility whereas the Sharpe ratio takes into account both the up- and downside volatility.

The Sortino ratio is sometimes thought to give a better view of a portfolio’s risk-adjusted performance because positive volatility is usually considered purely a benefit. The Sharpe ratio is used more to evaluate low-volatility investment portfolios, and the Sortino ratio is used more to evaluate high volatility portfolios. The Sortino Ratio is highlighted with a bigger size and a light green color on the chart.

The portfolio that minimizes the overall volatility is highlighted with a bigger size and a light blue color on the chart.

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Disclaimer: The information presented within this video is NOT financial advice.

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