REITs and Small Cap Value Stocks: Correlation, Volatility, Beta, and Alpha

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This slide shows monthly correlation between listed U.S. equity REITs and U.S. small-cap value stocks, January 1979 - December 2014. Correlation has usually been between 0.71 and 0.79, but was just 0.70 in December. Listed U.S. equity REITs have usually been less volatile than U.S. small-cap value stocks, and have been in every month since June 2013. Beta for listed U.S. equity REITs relative to U.S. small-cap value stocks has usually been between 0.59 and 0.73, and was 0.67 in October. Alpha for listed U.S. equity REITs relative to U.S. small-cap value stocks has averaged 0.32% per month, or 3.93% annually.

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REITs and Small Cap Value Stocks: Correlation, Volatility, Beta, and Alpha

  1. 1. Correlation and Volatility of Equity REITs and Small Cap Value Stocks January 1979 – December 2014, using DCC-GARCH Empirical Methodology • The correlation between listed U.S. equity REITs and U.S. small-cap value stocks has usually ranged between 0.71 and 0.79, and was 0.70 as of the end of December 2014. • U.S. small-cap value stocks have been more volatile than listed U.S. equity REITs during about 79% of months. As of the end of December 2014 listed U.S. equity REIT volatility was 16.49% compared to 17.20% for U.S. small-cap value stocks. • Beta of listed U.S. equity REITs relative to U.S. small-cap value stocks (not shown) has usually ranged between 0.59 and 0.73, and was 0.67 as of the end of December 2014; average monthly REIT alpha has been +0.32%. Note: Estimates derived from DCC-GARCH model (Dynamic Conditional Correlation with Generalized Autoregressive Conditional Heteroscedasticity, Engle 2002) Source: NAREIT® analysis of monthly total returns data from FTSE NAREIT All U.S. Equity REITs Index and Russell 2000 Value Index. 0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90 1.00 Jan-79 Jan-81 Jan-83 Jan-85 Jan-87 Jan-89 Jan-91 Jan-93 Jan-95 Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Correlation of Monthly Total Returns 0.00 0.10 0.20 0.30 0.40 0.50 0.60 Jan-79 Jan-81 Jan-83 Jan-85 Jan-87 Jan-89 Jan-91 Jan-93 Jan-95 Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Volatility of Monthly Total Returns FTSE NAREIT All REITs TR Russell 2000 Value 0

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