This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

The Dow And S&P Are Dancing Cheek To Cheek

In recent years the Dow has gotten ridiculed as a stodgy old index that isn't representative of the overall stock market.  It's important to remember, however, that the Dow's correlation on a day-to-day basis with the broader S&P 500 remains extremely high.  Below is a chart showing the rolling one-year correlation between the Dow and the S&P 500 using daily percentage moves over the last 30 years.  As shown, the correlation between the two indexes over the last year is just under 0.97 (1.0 is perfectly correlated), which is a very high reading.

You'll notice in the chart that the correlation between the Dow and the S&P 500 has been trending slightly lower since the start of the bull market. This slow creep lower is normal during long-term uptrends.  It's interesting to note that the correlation between the Dow and the S&P 500 peaked recently right at the lows of the bear market in 2009.  One of the tenets of investing is diversification, but as investors saw first hand during the financial crisis, correlations tend to spike towards 1 during big downturns, which pretty much defeats the purpose of asset allocation!

The post The Dow and S&P are dancing cheek to cheek appeared first on Smarter Investing.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community


Chart of I:DJI
DOW 16,528.03 -114.98 -0.69%
S&P 500 1,972.18 -16.69 -0.84%
NASDAQ 4,776.5080 -51.8170 -1.07%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs