How to Use the CryptoCompare Portfolio Risk Analysis tab

28 Sep 2017

If you invest in multiple cryptocurrencies, keeping track of all your holdings can be hard. That's why we designed the CryptoCompare portfolio. It went from a simple tracking app to a more advanced one with special features and functionalities like the advanced charts and sell option. However, you can choose to take advantage of these advanced functions or you can choose to keep it simple and ignore the more complicated features. 

In this guide, we explain how to take advantage of our risk analysis section. This section calculates various factors to determined how risky your investments are. Take a look:

Risk Analysis

Step 1: Click on the "Risk Analysis" tab

Now, you'll see four different pie charts.

 

Let's go through each of them and what they mean.

1. Wallet/Exchange exposure

It is good to know where your money is kept, as in general, exchanges are more prone to be hacked, therefore they are more risky places to keep your coins at. This chart shows how much (in absolute and percentage terms) of your money is kept either at an exchange or in a wallet. If your chart shows ‘unknown’, edit your coin information and it will show the right proportions.

2. Crypto exposure

The crypto exposure chart helps you keeping an eye on your portfolio composition. It shows which coin you are the most exposed to (which coin price will affect your portfolio value the most). To reduce the risk of one dominant coin exposure, you can choose to diversify and have many coins with a similar percentage in your portfolio. This is called portfolio diversification theory where having more assets generally lowers the risk profile of your portfolio because of different correlations amongst them. General theory the more the better although you can just bet on one horse if you'd like.

3. Liquidity Exposure (Time Until Liquidation)

Liquidity exposure means that you are at risk of not finding a counterparty when you want to close your open position (or you have to wait for a long time). We have created a measure for you called “time until liquidation” which is calculated based on the last thirty days average volume of a coin (versus the base currency of your portfolio), and the quantity of that coin you currently hold.

For example: if a coin is traded with a volume of 1 unit every hour, and you hold 2 units of that coin, your average time until liquidation will be 2 hours (you sell 1 coin each hour in average). This measure is not based on current market buy-sell orders, and does not reflect the real-time market conditions. Its primary goal is to give you an estimate of your portfolio’s liquidity risk based on past transaction volumes.

4. Volatility exposure

The volatility exposure chart gives you an overview on the price swings of your portfolio. The higher the volatility, the bigger movements you can expect in your portfolio value. Price change is a risk, as the change can be either down or up.

Volatility is calculated basedon the last 30 days price changes returns and then annualized.

Let’s say your portfolio has a volatility of 20%. This shows that based on your portfolio’s last 30-day performance, you can expect that within 1-year horizon, the return of your portfolio can improve 20% or deteriorate 20% compared to the average return of last 30 days.

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