BTC Combined Portfolio - Investment Analysis
Date: 2026-01-26 Recommendation: CONDITIONAL APPROVE Proposed Allocation: 10-20% of BTC-denominated portfolio
1. Executive Summary
| Metric | Value | Source |
|---|---|---|
| CAGR | 15.47% | _summary.csv |
| Annualized Volatility | 1.99% | _summary.csv |
| Sharpe Ratio | 7.79 | _summary.csv |
| Max Drawdown | -0.75% | full_history/portfolio_cvx_qlib_risk.csv |
Investment Thesis: The BTC Combined Portfolio delivers an exceptional risk-adjusted return profile (Sharpe 7.79) by blending three BTC-denominated strategies — Velox, Quantstrat, and Persistent — into a convex-optimised allocation. The portfolio exhibits remarkably low volatility (1.99% annualised) and a shallow maximum drawdown of -0.75% over the full 3-year history, suggesting a genuinely diversified return stream within the BTC ecosystem. The CVX optimizer concentrates capital in Velox (35%) and Persistent (65%), effectively excluding Quantstrat due to its weaker risk-adjusted contribution.
Key Conditions:
- Continued monitoring of Velox backfill methodology (USD-proxy ratio of 0.53 used prior to Aug 2025)
- Quantstrat backfill assumption (10.4% annualised gross post-Nov 2025) must be validated with live data
- Persistent strategy only has actual data from Feb 2023–Oct 2025; forward performance must be confirmed
- Max drawdown hard stop at -3.00% with mandatory review at -1.50%
2. Data Quality
| Metric | Value |
|---|---|
| Date Range | 2023-01-01 to 2025-12-31 |
| Trading Days | 1,096 |
| Data Gaps | None (0 gaps, 0 duplicates) |
| Zero-Return Days | Velox: 4 (0.4%); Quantstrat: 0; Persistent: 0 |
Data Quality Assessment: The dataset spans 3 full calendar years with no gaps or duplicates across 1,096 daily observations. However, two material backfill caveats apply: (1) Velox BTC returns prior to August 2025 are reconstructed from USD returns using a fixed 0.53 ratio, and (2) Quantstrat returns after November 16, 2025 are synthetically filled at a 10.4% annualised gross assumption. Persistent has 107 null entries (available Feb 2023–Oct 2025 only, no backfill). Outliers (>5 std) were identified — 5 in Velox, 8 in Quantstrat, 10 in Persistent — all consistent with genuine crypto market moves.
3. Performance Analysis
3.1 Annual Breakdown
| Year | CAGR | Volatility | Sharpe | Max Drawdown |
|---|---|---|---|---|
| full_history | 15.47% | 1.99% | 7.79 | -0.75% |
| year_2023 | 14.04% | 1.73% | 8.13 | -0.37% |
| year_2024 | 23.92% | 2.63% | 9.10 | -0.75% |
| year_2025 | 10.10% | 1.18% | 8.54 | -0.20% |
Source: _summary.csv for CAGR/Vol/Sharpe; <period>/portfolio_cvx_qlib_risk.csv for Max Drawdown
3.2 Performance Commentary
The portfolio delivered positive returns across all three calendar years with remarkably stable Sharpe ratios ranging from 7.79 to 9.10. Year 2024 was the strongest period (23.92% CAGR) driven by higher volatility capture, while 2025 showed compressed returns (10.10%) alongside the lowest volatility (1.18%) and shallowest drawdown (-0.20%). The consistency of high single-digit Sharpe ratios across all periods suggests robust alpha generation rather than regime-dependent performance. The maximum drawdown never exceeded -0.75% in any period, indicating excellent capital preservation.
4. Factor Exposure
4.1 Full History — CVX Portfolio
| Factor | Beta | t-stat | p-value |
|---|---|---|---|
| BTC | 0.0002 | 0.18 | 0.859 |
| ETH | -0.0009 | -0.82 | 0.412 |
| funding_btc | 0.0293 | 4.17 | 0.000 |
| funding_eth | 0.0026 | 0.38 | 0.705 |
| Metric | Value |
|---|---|
| R-squared | 5.93% |
| Observations | 946 |
Source: full_history/factor_detail/portfolio_cvx_betas.csv
4.2 Year-by-Year Factor Stability
| Period | BTC Beta (p) | ETH Beta (p) | funding_btc Beta (p) | R² |
|---|---|---|---|---|
| 2023 | 0.0014 (0.466) | -0.0014 (0.419) | 0.0448 (0.000) | 12.93% |
| 2024 | 0.0021 (0.411) | -0.0045 (0.038) | 0.0212 (0.085) | 5.37% |
| 2025 | -0.0042 (0.028) | 0.0025 (0.035) | 0.0337 (0.001) | 8.38% |
Source: <period>/factor_overview.csv (portfolio_cvx rows)
Factor Analysis: The CVX portfolio demonstrates strong market neutrality to BTC and ETH price movements across the full history — neither spot factor is statistically significant (p > 0.40). The primary systematic exposure is to BTC funding rates (beta = 0.029, p < 0.001), consistent with the underlying strategies' basis-trade and funding-rate-capture mechanics. The low R² of 5.93% indicates that ~94% of portfolio variance is idiosyncratic — a hallmark of genuine alpha generation rather than leveraged beta. Year-by-year analysis shows the BTC/ETH neutrality is generally robust, though 2025 shows a small but statistically significant BTC short tilt (beta = -0.004, p = 0.028) that warrants monitoring.
5. Peer Comparison
5.1 Component Strategy Comparison
| Strategy | Ann. Return (mean) | Daily Std | Info Ratio | Max Drawdown |
|---|---|---|---|---|
| CVX Portfolio | 14.40% | 0.104% | 7.26 | -0.75% |
| Velox | 13.47% | 0.119% | 5.94 | -1.75% |
| Quantstrat | 4.81% | 0.226% | 1.11 | -3.82% |
| Persistent | 16.52% | 0.150% | 5.75 | -1.17% |
Source: full_history/allocator_summary.csv (individual strategies) and full_history/portfolio_cvx_qlib_risk.csv
5.2 Portfolio Construction Comparison
| Method | Velox Weight | Quantstrat Weight | Persistent Weight | Ann. Return | Ann. Vol | Sharpe |
|---|---|---|---|---|---|---|
| CVX (Optimised) | 35.0% | 0.0% | 65.0% | 15.47% | 1.99% | 7.79 |
| Equal | 33.3% | 33.3% | 33.3% | 11.67% | 1.91% | 6.10 |
| MinVar | 49.8% | 16.8% | 33.4% | 13.29% | 1.66% | 8.00 |
| Tangency | 52.2% | 5.8% | 41.9% | 14.51% | 1.72% | 8.46 |
Source: full_history/weights.csv, full_history/weights_cvx.csv, full_history/weights_stats.csv, full_history/weights_cvx_stats.csv
Relative Positioning: The CVX-optimised portfolio achieves the highest absolute return (15.47%) among all construction methods by concentrating into the two strongest strategies. The Tangency and MinVar portfolios achieve slightly higher Sharpe ratios (8.46 and 8.00 respectively) by accepting lower returns in exchange for reduced volatility. The CVX portfolio's exclusion of Quantstrat (0% weight) is validated by that strategy's weak standalone Sharpe (1.11) and deep drawdown (-3.82%). No external peer data is available for comparison.
6. Risk Assessment
6.1 Correlation Matrix
| Velox | Quantstrat | Persistent | |
|---|---|---|---|
| Velox | 1.00 | -0.07 | 0.05 |
| Quantstrat | -0.07 | 1.00 | 0.10 |
| Persistent | 0.05 | 0.10 | 1.00 |
Source: full_history/correlation.csv
The near-zero pairwise correlations (-0.07 to +0.10) confirm genuine diversification among the underlying strategies, supporting the portfolio's low aggregate volatility.
6.2 Key Risks
| Risk | Severity | Mitigation |
|---|---|---|
| Backfill bias — Velox USD-proxy conversion (pre-Aug 2025) and Quantstrat synthetic fill (post-Nov 2025) may overstate live performance | High | Validate with out-of-sample live returns for 6+ months; compare backfilled vs. actual periods |
| Persistent data gap — 107 missing days (strategy only active Feb 2023–Oct 2025) | Medium | Monitor live production continuity; confirm strategy is still actively trading |
| Concentration risk — CVX allocates 65% to a single strategy (Persistent) | Medium | Enforce max_weight constraint of 65%; rebalance quarterly; monitor Persistent for regime shifts |
| Funding rate regime change — Primary systematic factor (funding_btc) may compress | Medium | Track rolling funding rate levels; set alert if 30-day avg funding < 5bps |
| Crypto market structural risk — Exchange failures, regulatory changes, liquidity events | High | Diversify across counterparties; maintain BTC reserve for margin calls; cap overall crypto allocation |
| Short track record — 3 years with partial backfill is limited for crypto strategies | Medium | Weight recent live data more heavily in reviews; require 12-month live audit before increasing allocation |
6.3 Outstanding Due Diligence
- Obtain 6+ months of live (non-backfilled) performance for all three strategies
- Verify Velox USD-to-BTC proxy ratio (0.53) stability across market regimes
- Confirm Quantstrat is actively trading post-November 2025 (backfill assumption of 10.4% ann.)
- Confirm Persistent strategy operational continuity beyond October 2025
- Review counterparty exposure and exchange risk across all strategies
- Conduct independent audit of strategy return calculations and cost assumptions
- Stress-test portfolio under extreme BTC drawdown scenarios (>50% spot decline)
7. Recommendation
Decision: CONDITIONAL APPROVE
Allocation: 10-20% of BTC-denominated portfolio
The BTC Combined Portfolio (CVX method) demonstrates an outstanding risk-return profile: 15.47% CAGR with only 1.99% annualised volatility and -0.75% maximum drawdown over 3 years. The near-zero beta to BTC/ETH spot prices and low R² (5.93%) confirm meaningful alpha generation. However, material backfill caveats and a short partially-synthetic track record warrant a conditional approval with strict monitoring.
Risk Limits:
| Limit | Threshold | Action |
|---|---|---|
| Drawdown Warning | -1.50% | Formal review; assess cause |
| Drawdown Hard Stop | -3.00% | Reduce to 50% of allocation; escalate to IC |
| Sharpe Degradation | <4.00 rolling 3-month | Formal review; compare to component strategies |
| Volatility Spike | >5.00% annualised | Review; potential position reduction |
| Single Strategy Concentration | >65% | Rebalance to bring within limits |
Conditions for Approval:
- Obtain minimum 6 months of fully live (non-backfilled) returns for Velox and Quantstrat strategies before scaling above 10% allocation
- Confirm Persistent strategy is actively trading and producing returns beyond October 2025
- Quarterly rebalance cadence with CVX re-optimization using trailing 12-month data
- Independent verification of the Velox BTC/USD proxy conversion methodology
- Establish counterparty risk reporting across all three strategies
- Re-evaluate allocation at 12-month mark with full live data; escalate to full approval or exit
Data Sources:
/Users/syntax/projects/finance/allocator_analysis/reports/btc_combined_portfolio/_summary.csv/Users/syntax/projects/finance/allocator_analysis/reports/btc_combined_portfolio/full_history/portfolio_cvx_qlib_risk.csv/Users/syntax/projects/finance/allocator_analysis/reports/btc_combined_portfolio/full_history/allocator_summary.csv/Users/syntax/projects/finance/allocator_analysis/reports/btc_combined_portfolio/full_history/factor_detail/portfolio_cvx_betas.csv/Users/syntax/projects/finance/allocator_analysis/reports/btc_combined_portfolio/full_history/factor_overview.csv/Users/syntax/projects/finance/allocator_analysis/reports/btc_combined_portfolio/full_history/correlation.csv/Users/syntax/projects/finance/allocator_analysis/reports/btc_combined_portfolio/full_history/weights.csv/Users/syntax/projects/finance/allocator_analysis/reports/btc_combined_portfolio/full_history/weights_cvx.csv/Users/syntax/projects/finance/allocator_analysis/reports/btc_combined_portfolio/full_history/weights_stats.csv/Users/syntax/projects/finance/allocator_analysis/reports/btc_combined_portfolio/full_history/weights_cvx_stats.csv/Users/syntax/projects/finance/allocator_analysis/configs/btc_combined_portfolio.yaml