The impact of gold and silver mutual funds on diversification and risk-adjusted returns is examined in this study. On the basis of data from 10 mutual funds, which have been divided into equity (small-cap, mid-cap, large-cap), debt (short-term, medium-term, long-term), and alternative (gold and silver) funds, the research utilizes Mean-Variance Optimization (MVO), Principal Component Analysis (PCA), Rolling Beta Analysis, and Correlation Matrix Analysis to measure their diversification power.
The results demonstrate that gold mutual funds increase portfolio stability, especially during times of market stress, and silver mutual funds have a greater equity correlation but still achieve diversification. MVO results suggest that a best-fit portfolio composition prefers a mix of gold and equity funds, with least dependence on debt funds and maximum dependence on gold. PCA analysis verifies that alternative investments are segregated into discrete risk clusters, affirming their effectiveness in reducing risk. Rolling Beta Analysis also illustrates the time-varying sensitivity of gold and silver mutual funds to market movements.
By including alternative mutual funds, investors can gain increased diversification advantage and enhanced risk-adjusted performance. This paper contributes empirical evidence towards asset allocation rules, stressing the significance of alternative investments within mutual fund portfolios
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