Alternative Investment

Need to understand the logic of answer of CFA book Problem 3A Reading 37 which suggests that standard deviation for the unsmoothed NCREIF INdex is more than twice that for LABI, so this reallocation would not reduce risk measured by Standard Deviation. But my thought was that this has negative correlation with both S&P 500 and LABI which should reduce the risk.(in such case higher the standard deviation, better it is) As it will reduce overall standard Deviation. Any thoughts?