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# Packages and helpers
install.packages("tidyquant")

library(tidyverse)
library(tidyquant)
library(skimr)
library(timetk)


theme_set(theme_minimal())

Should your fund invest in Bitcoin?

📖 Background

You work as an analyst at an investment fund in New York. Your CFO wants to explore if it is a good idea to invest some of the fund's assets in Bitcoin. You have to prepare a report on this asset and how it compares to the stock market in general.

💾 The data

You have access to three files:

Bitcoin daily data in US dollars

  • "date" - date from September 17, 2014 to November 17, 2021
  • "open" - the price at the beginning of the trading day
  • "high" - the highest price reached that day
  • "low" - the lowest price reached that day
  • "close" - the price at the closing of the trading day
  • "volume" - how many Bitcoin were traded that day

bitcoin <- read_csv('./data/bitcoin-usd.csv')

bitcoin %>% 
  skim_without_charts()

S&P 500 daily data

  • "date" - date from September 17, 2014 to November 17, 2021
  • "open" - the index level at the beginning of the trading day
  • "high" - the highest level reached that day
  • "low" - the lowest level reached that day
  • "close" - the level at the closing of the trading day
  • "volume" - how many shares in the companies that make up the index were traded that day
sp500 <- read_csv('./data/sp500.csv')

sp500 %>% 
  skim_without_charts()

inflation and gold as monthly data

  • "date" - date from September, 2014 to November, 2021
  • "gold_usd" - price in usd of gold for that month
  • "cpi_us" - the inflation index for the US for that month (cpi = consumer price index)

CPI data from the U.S. Bureau of Labor Statistics (https://www.bls.gov/cpi/). Publicly available information.

gold_cpi <- read_csv('./data/monthly_data.csv')

gold_cpi %>% 
  skim_without_charts()

💪 Competition challenge

Create a report that covers the following:

  1. How does the performance of Bitcoin compare to the S&P 500 and the price of gold?

  2. Analyze Bitcoin's returns and volatility profile. Do you believe it could help improve the performance of a portfolio? Do you believe Bitcoin could be used as a hedge versus inflation?

  1. The CFO is looking to lower volatility in the fund. Explore building a portfolio using some or all of these assets. Make a recommendation that minimizes overall risk.

Strategy

In order to answer those questions we will first analyze and compare the individual assets to answer questions 1 and 2 and then consolidate some possible portfolios to answer question 3

What about the individual stocks ?

First we create a dataset with monthly periodicity from Oct 2014 to Oct 2021 in orther to compare the assets returns.

# Making dates and periodicity of prices consistent in order to compare returns

get_monthly_returns <- function(tbl, var, col_rename){
  tbl %>%
    tq_transmute(select = var,
                 mutate_fun = periodReturn,
                 period = "monthly",
                 leading = F,
                 indexAt = "lastof",
                 col_rename = col_rename)
}

select_and_fix_date <- function(tbl,var){
  tbl %>% 
    select(date, ) %>% 
    mutate(date = date-days(1))
}


inf_rate <- gold_cpi %>%
  select_and_fix_date(cpi_us) %>% 
  get_monthly_returns(cpi_us,"inf_rate")

assets_return <- bitcoin %>% 
  get_monthly_returns(close,"btc_usd") %>% 
  inner_join(
    sp500 %>% 
       get_monthly_returns(close,"gspc"),
    by = "date"
  ) %>%
  inner_join(
    gold_cpi %>%
      select_and_fix_date(gold_usd) %>% 
      get_monthly_returns(gold_usd,"gold_usd"),
    by = "date"
  ) %>% 
  slice(-1) %>% 
  pivot_longer(-date,names_to = "symbol",values_to = "return") %>%
  # Taking account for inflation
  left_join(inf_rate, by = "date") %>% 
  mutate(inf_adj_return = (1+return)/(1+inf_rate)-1)

Comparing returns and volatility

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