Real Estate Portfolio Risk Reduction through Intracity Diversification

Marvin Wolverton, Ping Cheng and William Hardin

Journal of Real Estate Portfolio Management, 1998, vol. 4, issue 1, 35-41

Abstract: Executive Summary. This study examines gains in real estate portfolio efficiency obtainable through intracity diversification. Employing a unique, ten-and-a-half year, Seattle, Washington, apartment income data set and bootstrapping techniques, it uncovers five homogeneous groupings of Seattle neighborhoods with low or negative between-group apartment income correlations. Quadratic programming is used to construct a diversified investment portfolio by optimally weighting the five neighborhood groups to minimize intracity apartment investment risk. The results show significant and sizeable reductions in standard deviation of portfolio income at a given rate of return.

Date: 1998
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DOI: 10.1080/10835547.1998.12089547

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