Why Real Estate?
Portfolio Diversification
A Powerful Diversification Tool — Low Correlation to Other Asset Classes
Asset classes have the potential to perform differently from one another — when one investment is underperforming, another may be outperforming. As a result, a diversified portfolio can potentially feature lower risk and higher overall return than a portfolio consisting of just one asset class.
Research indicates that REITs have a relatively low correlation with other asset classes, and may help reduce the volatility of a stock-and-bond portfolio.
Commercial Real Estate Investment Correlation 1
1997 - 2009
Correlation measures how one investment performs in relation to another. In general, asset classes with a correlation less than 0.70 or greater than -0.70 are considered to have relatively low correlation.
| Correlation Coefficient | Relationship | If Asset A... | Then Asset B will... |
| +1 | Perfect Positive | Increases Decreases |
Increase by same amount Decrease by same amount |
| 0 | No Relation | Increases Decreases |
May increase, decrease or not change May increase, decrease or not change |
| -1 | Perfect Negative | Increases Decreases |
Decrease by same amount Increase by same amount |
1 Sources: Bloomberg (S&P 500, S&P 600 and MSCI-EAFE indices), Lehman Brothers (10-Year U.S. Govt. Treasury Bond Index), NCREIF (NCREIF Property Index) and OFHEO House Price Index. Past performance is not a guarantee of future results. This material is for informational purposes only, and does not reflect the actual correlation of specific investments. Commercial real estate correlation is represented by the NCREIF Property Index (NPI) which is an index of quarterly returns reported by institutional investors on investment grade commercial properties owned by those investors and is presented without leverage or fees. The NPI is used as an industry benchmark to compare an investor’s own returns against the industry average. Investors cannot invest directly into any index. The S&P 600 Index is an unmanaged index of 600 small-capitalization, publicly traded stocks representing a variety of industries. The MCSI-EAFE Index is a capitalization-weighted index that monitors the performance of stocks from Europe, Australasia and the Far East.