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The Dynamics of the Australian Property Trust Market Risk and Correlation Profile

Author/s: Graeme Newell, Peter Acheampong

Date Published: 1/01/2001

Published in: Volume 7 - 2001 Issue 4 (pages 259 - 270)

Abstract

The diversification benefits of listed property trusts (LPTs) in investment portfolios in Australia are assessed under different market conditions over 1980–2000. Correlations between LPTs and shares are shown to vary considerably, with the correlation increasing significantly in down-market conditions. This increased correlation between LPTs and shares is also linked to increased LPT and stockmarket volatility. This highlights the need to consider market conditions when considering asset allocations and the level of LPTs in investment portfolios. Given the considerable growth and maturity in LPTs since 1990, LPTs were also seen to retain their portfolio diversification benefits with increased stockmarket volatility in the 1990’s, compared to the potential loss of some of these portfolio diversification benefits in the 1980’s

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Keywords

Asset Risk - Inter-Asset Correlation - Portfolio Diversification Benefits - Property Trusts - Semi-Correlation

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