Tag Archives: adam davidson

The S&P 500 and the Dow Jones

Adam Davidson in last Sunday’s New York Times Magazine, on the drawbacks of the Dow:

None of these criticisms will come as news to finance professionals, most of whom use far more precise measures — like the S&P 500 or the Wilshire 5000, which cover more companies more precisely — when making investment decisions.

The S&P 500 certainly covers a wider range of companies.  But in a typical 5-day window its correlation with the Dow is more than 95%.  How much more precise could it be?

It’s good to have fine-grained measures, but it’s also good to know at what point extra granularity stops addding new content.

 

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