a solution from CFAI practice question “Real estate returns generally have low correlations with returns on other assets classes, such as stocks and bonds, and thus allow the endowment to diversify portfolio risk.”
however I read from somewhere that commercial real estate is high correlated with bond and equity market, is that true?
I can confidently say that is not true. I currently work in Investments on the Real Estate side and investments in Real Estate is seen as a hedge strategy due to its low correlation with traditional investments. It is seen as a way to hedge against the effects of inflation as well, which protects your portfolio and diversifies your risk.
The S&P return last year(2018) was in the negatives (below -4% I believe) and MSCI/IPD (real estate index) had a 7.4% return
So yes, real estate has a low correlation with other traditional asset classes.
That, by itself, is no indication of the correlation of returns between those indices.
None whatsoever.
Of course it is.
I’m not going to engage in a yes-it-is-no-it-isn’t exchange with you.
If you think that one data point tells you about the correlation of returns (or anything else, for that matter), you would benefit from reviewing correlation.
Alright. If that’s what you got from my initial explanation, not sure what else to add.