This paper presents the result of a study dealing with the benefits of
incorporating data center REITs in an investment portfolio with multiple assets.
Utilizing a data set consisting of total returns from the 5 biggest data center real estate
investment trusts (REITs), questions relative to investment performance in terms of
risk-adjusted return enhancing and diversification benefits are addressed. Issues
relative to portfolio performance are considered by constructing all possible
combinations of data center REITs, U.S stocks, U.S bonds, diversified REITs and
emerging market stocks. The methodology used in exploring these issues is the
calculation of Jensen’s Alpha, which is based on the traditional capital asset pricing
model (CAPM) and Sharpe Ratio of multiple portfolios of mixed assets to evaluate
performance. The portfolios are then graphed by risk, returns and fitted by the efficient
portfolio frontier (EPF) and the capital allocation line (CAL) to address and visualize the
difference between portfolios with data center REITs and portfolios without data center
REITs, while also addressing how investors could adjust asset weights to achieve their
optimal portfolio mix. Finally, different correlation matrices of asset returns, asset
allocation choices versus Alpha, Sharpe and risk are generated to discuss data center
REITs return enhancing and diversification benefits compared to U.S stocks, bonds,
diversified REITs and emerging market stocks.