The Risk and Return of Traditional and Alternative Investments Under the Impact of COVID-19

Abstract

Background: In making investment decisions, asset risk and return are two crucial criteria on which investors base their decision. Objectives: This paper provides risk and return analysis and compares different traditional and alternative investments with special emphasis on the COVID-19 crisis. Assets included in the analysis are stocks, bonds, commodities, real estate, foreign exchange, cryptocurrencies, renewable energy sources, gold, and oil. Methods/Approach: The risk measures of standard deviation, Value at Risk (VaR), Conditional Value at Risk (CVaR), and Sharpe ratio are used to compare the representatives of each asset class. Results: The crisis had the highest impact on the risk of crude oil, renewable energy sources, real estate, and stocks, a slightly lower impact on the risk of commodities and gold, and a very low impact on the risk of bonds, foreign exchange, and cryptocurrencies. The order of assets regarding earning potential during the crisis, compared to the period before the crisis, changed significantly for commodities in a positive way and for gold and bonds in a negative way. Conclusions: This research shows that stocks won against all other assets, including gold and cryptocurrencies, during the COVID-19 crisis. The good features of a new alternative investment – renewable energy sources – with excellent earning potential are shown.

The role of alternative investments in Brazilian portfolios

“…Importantly, this protective role is most pronounced during periods of heightened volatility and market turbulence, also noting that bitcoin, gold and VIX futures offer appealing diversification benefits for investors in BRICS stock markets. Aljinović et al (2022) examines the impact of the COVID-19 pandemic on the risk and return of traditional and alternative investments. The paper uses a variety of risk measures, including standard deviation, Value at Risk (VaR), Conditional Value at Risk (CVaR), and Sharpe ratio, to compare the performance of different asset classes during the pandemic.…”