QQQQ has a high correlation to other major benchmark indexes, providing long-term shareholders a tool to "stay on the highway" and follow market trends, and short-term investors a tool to hedge market movements. QQQQ's correlation to the
is about 90%, while its correlation to the
Dow Jones Industrial Average
is about 78%.
It is important to note, however, that despite the high correlation between the QQQQ and the S&P 500, the composition of the fund is very different. Just 18% of the stocks in the QQQQ are also in the S&P 500 -- an important consideration before swapping one for the other. On the other hand, however, the S&P 500 has a 16% allocation to tech and QQQQ's components make up virtually the entire slice.
While average daily trading volume is a good indicator of ETF liquidity, the liquidity of the stocks that comprise the ETF can be an equally important measure of the viability of a fund. By these two measures, the QQQQ is liquid through and through.
The three-month average daily trading volume of QQQQ is nearly 150 million shares, keeping spreads tight throughout the day. Since it is a market-cap weighted index, QQQQ's top components are also extremely liquid -- top component Apple has a three month average trading volume of more than 20 million.
QQQQ's liquidity means that you won't have to pay large premiums to participate. The composition of the fund allows it to be very reactive to market changes and provide signals for traders throughout the day.