A framework for decentralized index funds performance analysis and design

William F. Sharpe was awarded the 1990 Nobel Prize in Economic Sciences for his work on Capital Assets Pricing Model

What are the Sharpe and Sortino ratios ?

Source : Investopedia
Source : Investopedia

Both indicators can be used to weigh an entire portfolio’s / index performance against its intrinsic volatility :

➡️ The higher the Sharpe ratio of a portfolio / index, the better the historical return on investment relative to overall volatility — both up and down.

➡️ The higher the Sortino ratio of a portfolio / index, the better the historical return on investment relative to overall volatility — only to the downside.

What this framework is and isn’t about

Few beginners develop a longer term approach, and aim to build a portfolio with long-lasting performance while minimizing the effects of volatility. This is where index funds and rebalancing techniques get interesting, gaining exposure to a wide range of assets while reducing the downside impact of the least performing ones.

Decentralized index funds, which composition is governed and revenues shared among blockchain-based communities, are developing at a quick rate and enable investors to do precisely this, with different baskets of digital assets.

The state of the art

Annualized Sharpe & Sortino ratios of the 6 biggest decentralized index funds on the DeFi market to date (calculation started at index inception)
Annualized Sharpe & Sortino ratios of the 6 biggest decentralized index funds on the DeFi market to date (calculation started on December 1st)
Annualized Sharpe & Sortino ratios of some of the major components of $DPI’s index to date

Proposal to optimize the risk-adjusted return of a decentralized index fund

Annualized Sharpe & Sortino ratios of the best DeFi tokens to date

What would have happened if a fund equally composed of these 17 tokens, had been launched on November 6th (as soon as $ALPHA listed on the market) ?

Who am I and what am I doing ?

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