I Outperformed the Market by 36% using This Chart
A simple trick to set up your portfolio for success.
Portfolio allocation
Firstly, let’s talk about portfolio allocation. We’ve seen “advice” like these a lot:
- “Low risk: 55% stablecoins, 35% blue chips, 10% degens”
- “Medium risk: 35% stables, 45% blue chips, …”
- “High risk: 25%, 35%, …”
- “In a bear market, all in stables”
These are shared with good intentions, BUT MISLEADING:
- It’s NOT a one-size-fits-all thing, but largely driven by one’s own risk tolerance
- It is dynamic based on time, goal, and performance
- The most important trick is missed — DIVERSIFICATION
Diversification
A diversified portfolio is a collection of different investments that combine to reduce an investor’s overall risk profile. One of the reasons that crypto is considered high risk, is because 99% of the coins/tokens are HIGHLY CORRELATED.
Say, you put 30% into the so-called “blue chips”: $BTC, $ETH, $SOL, $BNB, $DOT, $LINK, etc. You thought you’ve diversified, but the truth is you just threw 30% of your portfolio into ONE SAME asset. Look how identical they were over the past 3 months.
My strategy
Because of this, my “blue chip” bucket strategy is simple: pick the less correlated assets. The chart shows the correlation between the top 100 alts vs. $BTC. The closer the line is to the centre, the less correlated it is to $BTC. MAJORITY of alts are HIGHLY correlated.
The less correlated ones
The LEAST correlated ones are: $TRX, $XCN, $EVMOS, $GMT, $XMR, $APE, $ZIL. Interestingly, $TRX, $GMT, $XMR, $APE, and $ZIL have been super HOT on CTs. $XCN and $EVMOS were less talked about (Alpha?!).
With the correlation in mind, and combined with a few other factors e.g. I’m bullish on privacy coins and have been researching stablecoins, I ended up holding $XMR and $TRX in my “blue chip” bucket. (I gave up $GMT due to the ban and saturation. But I still like it.)
PnL
Last month, including the great capitulation, $BTC was down 21.5%. My blue chip bag: — $XMR: down 7% — $TRX: up 21% On avg. the diversified bucket beats $BTC by 36%. Note this is the PnL in the “blue chip” bucket.
Will I continue holding $XMR & $TRX?
Not for long. The recent bouncebacks had low volume (weak market), so I will shrink my “blue chips” size. Also, two main reasons $TRX maintained uncorrelated were 1) $USDD (good), 2) and “market-making” activities (bad!).
How much should you rely on the correlation?
Use it as a reference, not an indicator as it is based on the past. It doesn’t guarantee you the future. Factors like macros and project research are more important. i.e. don’t invest in an uncorrelated but shitty project.
