These instruments allow investors to hedge their positions or speculate on price movements without directly holding the underlying asset. Derivatives and options provide tools for managing risk and generating returns in a diversified portfolio. For instance, if Ethereum shows lower price swings than a DeFi token like Aave, a volatility-focused strategy might favor a higher allocation to Ethereum. Risk-adjusted diversification is a more sophisticated approach that takes into account both the potential return and the risk of each asset. Investors can use various models to balance risk and reward in their portfolios.