Why do Indices follow each other?

Doomberg

Established member
960 75
If the Dax is made up of companies like BMW etc and the Dow is made up of companies like Bank of America, then why do they correlate so much? You can't day trade Dax without having a Dow chart open as it's going to follow it. Even when the Eastern markets have a move in their morning it can have influence on what happens on the other markets when we open. Why is this?

Also does anyone know of what news alert calendar is best for Dow Jones?

Thanks
 

Shakone

Senior member
2,458 665
Well... you can day trade DAX without a Dow chart, so I don't agree there. Wasn't there an article Liquid Validity posted a while back, where the Bengali butter futures (or something like that) were most closely correlated with the S&P? I wouldn't get too hung up on correlation.

However, of course there is something. If I asked the question related to football, why is it that just because Fernando Torres cost 50m, then Carroll cost 35m which he's c learly not worth, would it make sense to you? Neither make sense to me, but there you go. There's some sort of connection.

If Cantona kicked a fan and got banned for 8 months, is it more or less likely that HAzard will be banned for a similar time for kicking a ballboy in the ribs.

Two things going along together doesn't really mean much to me unless one preceded the other and would help to predict the other. Do you find that is the case?
 
M

member275544

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If the Dax is made up of companies like BMW etc and the Dow is made up of companies like Bank of America, then why do they correlate so much? You can't day trade Dax without having a Dow chart open as it's going to follow it. Even when the Eastern markets have a move in their morning it can have influence on what happens on the other markets when we open. Why is this?

Also does anyone know of what news alert calendar is best for Dow Jones?

Thanks
Your example BMW..they are not just listed in one exchange. My understanding BMW group is also listed in the DOW. Often companies list in multiple exchanges and are accountable in each one. Helps to raise more revenue. Not only german people are buying BMW shares. This may go towards explaining the correlation.
This is just a guess of course, but I dont know of a news alert for DJ. Never trade from news imo
 
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BeginnerJoe

Senior member
3,329 350
Most economies are intertwined. What's is good for one, especially the dominant ones, will be good for the others. Second reason is people believe indices follow each other, so they do everything in their power to fulfill that prophecy. A lot that happens in the market is based on nothing more than random beliefs. If enough people believe it, it becomes real. I believe most trading phenomena are manufactured rather than they really exist.
 

robster970

Veteren member
4,566 1,390
Indices are highly correlated because index performance is mainly affected by macroeconomic conditions. All boats rise on a high tide.......

Arb then takes care of the rest I suspect.
 
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Funky Trader

Junior member
46 2
There's about a plus or minus 10% difference in their performance, so not that tightly correlated. Not like the Swissy and Euro peg, that sees a maximum variation of less than 1%.

The whole market is now so rigged anyway. Big players can move the market to wherever they want it to go. Lately, more than ever before, sovereign country's central banks have been doing just that.
 

Vicorka

Active member
246 7
Indexes do not follow each other. Indexes follow the market sectors they cover. Indexes that cover the same market sector have similar trend.

Check Nasdaq 100 - it has been moving side-way whole January while S&P 500 and Russell 2000 were moving up. If you go into intraday charts you will see that indexes may move even in opposite directions. Yes, on 10-year chart all indexes will have similar trend, but this is reflection of the entire market.
 
M

member275544

0 0
Indexes do not follow each other. Indexes follow the market sectors they cover. Indexes that cover the same market sector have similar trend.

Check Nasdaq 100 - it has been moving side-way whole January while S&P 500 and Russell 2000 were moving up. If you go into intraday charts you will see that indexes may move even in opposite directions. Yes, on 10-year chart all indexes will have similar trend, but this is reflection of the entire market.

Vicorka, as per your avatar you are a vendor/coach/trainer..is this true?
 

NVP

Legendary member
37,584 2,008
Read john murphys books on intermarket correlation

then believe about half of it ......

N
 

tomorton

Legendary member
8,172 1,239
Indexes do not follow each other. Indexes follow the market sectors they cover. Indexes that cover the same market sector have similar trend.

Check Nasdaq 100 - it has been moving side-way whole January while S&P 500 and Russell 2000 were moving up. If you go into intraday charts you will see that indexes may move even in opposite directions. Yes, on 10-year chart all indexes will have similar trend, but this is reflection of the entire market.


Surely, the de-coupling of the Nasdaq is down to the over-weight influence of Apple since it's launch. It's a unique case that doesn't prove your point. But do you have other examples?
 

barjon

Legendary member
10,612 1,751
Indices take their lead from the main economic players which is primarily a matter of sentiment. They tend to follow those main players, but not necessarily at the same pace. For example, although FTSE has reflected the performance of DOW it would be standing at well over 7000 had it matched the pace of DOW over the last couple of years.

During that time FTSE has had periods where it accelerated away from DOW and others (mostly) where it fell far behind.
 
 
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