Portfolio volatility is a measure of how much the value of an investment portfolio fluctuates over a given period, typically calculated as the standard deviation of returns. A highly volatile portfolio can swing sharply in value from month to month, even if its long-term average return is attractive, while a lower-volatility portfolio tends to move in a narrower, more predictable range. Volatility is one of the most common shorthand measures investors use to describe risk, separate from the question of whether returns are ultimately positive or negative.
Public equities tend to exhibit relatively high day-to-day volatility because prices update continuously in response to news and trading activity. Private real estate is valued far less frequently, often quarterly or annually through appraisal, which mechanically smooths out reported volatility even though the underlying property values are still subject to market forces. Investors who add private real estate to a public-market-heavy portfolio often do so, in part, to reduce overall portfolio volatility and limit exposure to short-term market sentiment.
Further reading: Real Estate Crowdfunding and Its Discontents
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