When you set out to build a portfolio, you’re really deciding how to mix different asset types — real estate, equities, fixed income, and commodities — all of which behave differently.
Each one will influence both your returns and your overall risk in its own way. Some assets move in the same direction, while others don’t.
For example, two stocks in the same industry often rise and fall together. By contrast, gold and a company’s share price may move independently.
That difference comes down to correlation. Correlated assets share similar price patterns while non-correlated assets move without any direct relationship.
Because they respond differently to the same market conditions, non-correlated assets can add balance to a portfolio, but they also require careful evaluation before you commit capital.
What are non-correlated assets?
Non-correlated assets are investments that don’t influence each other’s price movements. If one asset rises or falls due to a market force, the other is unlikely to move in the same way (or at all).
Let’s look at the correlation scale to see how this works in practice. Correlation is measured on a scale from +1.0 to -1.0.
Assets with strong positive correlation (+1.0) track each other almost exactly while assets with strong negative correlation (-1.0) move in opposite directions under the same conditions.
Non-correlated assets score near zero. They may show little or no relationship, making them harder to predict but valuable in reducing overall volatility.
Stocks in the same sector usually have a high positive correlation, while stocks and bonds often show negative correlation — that is, when stock values climb, bond prices may decline as investors shift capital.
Non-correlated assets, by contrast, don’t show a clear link to these patterns.
Are non-correlated assets and uncorrelated investments the same?
No. Uncorrelated investments are a related concept but they’re not quite the same.
While non-correlated assets sit at exactly zero on the correlation scale, uncorrelated investments fall close to zero without being perfectly independent.
In practice, uncorrelated investments may show weak or inconsistent relationships with other assets but not enough to move in lockstep.
For example, commercial real estate and equities are often described as uncorrelated investments — sometimes they move in the same direction, sometimes they don’t, but the link is weak compared to assets within the same sector.
There’s also a related phrase you’ll hear in investment discussions: uncorrelated returns.
What exactly are uncorrelated returns?
This term refers to outcomes that land close to zero on the correlation scale. The return on one investment doesn’t reliably explain or predict the return on another.
For example, a private real estate fund’s performance may have no consistent connection to gold or cryptocurrencies.
Because these returns don’t line up in a clear pattern, they can help reduce overall portfolio swings, even if they aren’t perfectly independent.
How do non-correlated assets tie into portfolio strategy?
Does market volatility keep you on edge?
Non-correlated assets let you spread risk so one setback doesn’t ripple through your entire portfolio.
By holding a mix of assets that don’t move together, you can soften the impact of downturns and the severity of your losses.
This idea is central to modern portfolio theory, which looks at investments as parts of a whole rather than in isolation.
1. Big-picture analysis:
Instead of asking whether one asset is “good” or “bad” in isolation, the theory asks how it interacts with the rest of your portfolio.
Adding a non-correlated investment might give you growth potential without stacking on the same risks you already carry elsewhere.
2. Using historical data:
Past performance helps investors forecast how assets might respond in the future.
Looking at long-term patterns can help you understand how different assets have behaved under stress, and that perspective can make it easier to see which non-correlated assets might fit with your goals and risk tolerance.
3. The efficient frontier:
This is a graph that compares portfolio risk to return. Portfolios along or above the frontier line are considered efficient in that they deliver the most return for the level of risk.
Non-correlated assets can help nudge your portfolio closer to that optimal balance.
Of course, modern portfolio theory isn’t perfect. It relies on precise calculations and historical data, both of which may fall short when markets change quickly or behave in new ways.
That’s why it’s important to use the theory as a framework and not as a crystal ball.
Examples of non-correlated assets
- Individual properties and non-traded real estate investment trusts (REITs) often move on their own cycle, separate from the stock market. Real estate values do sway, but not always in sync with equities or bonds. Beyond that, real estate investments can also bring predictable yields from dividends or rent and potential tax advantages through depreciation.
- Metals such as gold, silver, platinum, palladium, rhodium, and iridium tend to move independently from stocks and bonds. While they don’t produce income (gold, for example, is often described as a non-yielding asset), their value typically holds steady over time. Adding metals can help smooth out swings in your portfolio especially when your equity or fixed-income positions are more volatile.
- Artwork, antiques, coins, and even rare comic books can function as non-correlated assets. Their value depends on their rarity and demand rather than broad market forces. For instance, a painting in pristine condition or a rare gold coin may appreciate over time regardless of stock trends.
- Digital assets like Bitcoin and Ethereum have developed as markets largely separate from traditional finance. Their prices swing sharply based on regulation and demand, but those swings don’t usually track with stock or bond markets. Because of that, cryptocurrencies can diversify a portfolio. Be sure to consult an expert before committing funds as this asset class is relatively new and complex.
Risks to keep in mind
- Unlike stocks or bonds, many non-correlated assets can’t be sold with the click of a button. For example, if you hold a rare painting valued at $200,000, you might wait months (or even years) for the right buyer. Similarly, certain real estate investments can tie up your money until a property sells or a REIT allows redemptions, so if you suddenly need access to cash, that lack of liquidity can become a problem.
- Volatility in niche markets is another large risk. Cryptocurrencies are a prime example. Bitcoin and Ethereum don’t move in tandem with stock markets, but their day-to-day swings can be extreme. Remember when investors who put money into crypto at its 2021 peak saw values fall by more than half in the following year? While the asset class may provide non-correlation, it can also expose you to wild fluctuations that are difficult to predict.
- Assets like collectibles can be tricky to price. The value of a vintage comic book or antique piece of furniture often depends on its condition and demand from a relatively small pool of buyers. Two appraisers may even give very different estimates. It may take years to recover your investment if you misjudge the market or pay more than an item is worth.
- Because non-correlated assets operate independently from broader financial markets, you can’t rely on stock indexes or economic indicators to guide you. For example, a private real estate investment might be impacted more by local zoning laws or neighborhood trends than national economic conditions. You may end up overlooking risks that affect your return potential without careful due diligence.
Commercial real estate as a non-correlated asset
Commercial real estate assets don’t always move with the stock or bond markets, which is why many investors rely on them to diversify beyond traditional equities.
Properties like office buildings, apartments, industrial parks, and retail centers are driven more by local demand and lease agreements (as well as financing conditions to some extent) than by day-to-day market swings.
A dip in stock prices doesn’t automatically reduce the rent you collect from tenants under long-term leases.
You’ll see this independence even more clearly with non-traded REITs — they don’t rise and fall every time the stock market gets jittery because they aren’t priced on an exchange.
That steadier pricing can help balance out the volatility that equities or even crypto can bring to your portfolio.
But keep in mind that rising interest rates can cut into CRE property values or make refinancing harder.
A recession can lower demand for office, retail, or hospitality space. And unlike stocks, you can’t sell a building overnight — it can take months to turn it into cash.
So if you’re planning to use commercial properties as a way to steady your portfolio, do your research and make sure that you understand how the property fits into your long-term goals.
You will also need access to fast and flexible financing so that you can close deals on time and stay competitive.
Our team here at Private Capital Investors specializes in commercial real estate financing for time-sensitive deals.
Approvals can be as fast as 24 to 48 hours and funds can be released in 14 days, so you can seize opportunities immediately when they come up.
Email info@privatecapitalinvestors.com or call us at 972-865-6206 to talk about your project.
