Battle Between Markets : an Analysis Comparing Real Estate Investment Trusts and the S&P 500

Abstract

The purpose of this Senior Individualized Project is to use analytical and statistical methods to determine the relationship between REIT market indices and U.S. market indices. This study will start with an academic literature review covering the seminal theory surrounding investing, components of risk and return, portfolio strategy, and REITs. This study applies the theory by performing statistical and historical analysis on the U.S. market and REIT indices. This review will analyze publicly available datum for the aforementioned indices; specifically, this review will examine the total returns and price levels for the indices. The analysis was performed by comparing the standard deviations and correlations of the total returns and price levels of the indices. The study found that REITs are weakly correlated to the S&P 500, and have a lower standard deviation based on historical returns. This review concludes, then, that REITs can potentially offer investors a lower-risk, higher return asset to a given portfolio.