Analysis of the Dynamic Conditional Correlation among Financial Assets and the Value at Risk of the Portfolio, Featuring Gold USD and Cryptocurrency

Abstract

This paper examines the risk-return attributes, interrelations, and diversification capabilities of Gold and prominent cryptocurrencies—Bitcoin, Ethereum, and XRP—utilizing sophisticated econometric models, such as Dynamic Conditional Correlation (DCC-GARCH) and Value at Risk (VaR) techniques. The research indicates that gold demonstrates low volatility and functions as a reliable hedge against the high-risk, high-reward characteristics of cryptocurrencies, especially Ethereum. The weak correlations across cryptocurrencies indicate little co-movement, emphasizing their distinct risk profiles and diversification potential within the digital asset market. The results underscore the significance of adaptive risk management systems, since correlations and volatilities fluctuate under severe market situations. The findings provide essential insights for investors and regulators, providing direction for the creation of resilient portfolios that harmonize stability and growth across both conventional and digital assets.