Agreed - a price-weighted index like the DJIA doesn't make much sense for describing the aggregate behaviour of the constituents, even if it does attempt to adjust for stock splits.
A market-cap weighted index like the S&P 500 is probably a better measure.
The correlation between SPX and the DJIA will generally be quite high, because sampling 30 stocks (and generally those with the biggest market caps) gives you a good estimate/representation.
As a result, over short periods of time, the spread between the two will be relatively small.
Over long periods of time however, the spread can be significant. See the following:
Yes, the calculation of the Dow Jones is a complete joke, but, funnily enough, it has tracked the fairly sensibly calculated S&P 500 surprisingly closely over time.
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Agreed - a price-weighted index like the DJIA doesn't make much sense for describing the aggregate behaviour of the constituents, even if it does attempt to adjust for stock splits.
A market-cap weighted index like the S&P 500 is probably a better measure.
I don't know much about this, but I looked them up and it's interesting how well the two compare: https://www.google.com/finance?q=INDEXSP%3A.INX%2C+INDEXDJX%...
The correlation between SPX and the DJIA will generally be quite high, because sampling 30 stocks (and generally those with the biggest market caps) gives you a good estimate/representation.
As a result, over short periods of time, the spread between the two will be relatively small.
Over long periods of time however, the spread can be significant. See the following:
1. http://avondaleam.com/dow-jones-vs-sp/
2. http://www.thumbcharts.com/101035/DJIA-vs-S-P-500 (Compare 1, 2, 3 and 5 years)
Yes, the calculation of the Dow Jones is a complete joke, but, funnily enough, it has tracked the fairly sensibly calculated S&P 500 surprisingly closely over time.
No, it hasn't. The two diverge greatly over long windows.
FYI, the S&P500 is weighted by float (market cap available for public trading) and not market cap, per se.