Does smoothing of real estate data increase or decrese the correlation with other assets? why?
It increases the correlation of REITS with each other, because it artificially lowers the volatility by keeping “stale” prices more constant - results in an artificially high Sharpe (same as PE funds with stale valuations). I don’t believe it has much if any influence on the relationship of real estate returns with other asset classes (but I certainly could be wrong about that).
In my opinion, smoothing results in LOWER correlation among asset classes (like direct real estate) and over-emphasizing the resulting diversification benefits from adding an asset class to a traditional Stock-Bond portfolio. more views are welcome.
I think it will lower correlation because the price stays constant regardless of the fluctuation of price of other assets. does it make sense?
lower correlation, lower volatility. This is due to the statistical property of the correlation measure rather reflecting the true correlation.
Agree that it lowers
I too agree that it should be lower…