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Fun With DJIA Calculations

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August 18, 2011 – Comments (0) | RELATED TICKERS: DIA

With the DIA being up and down 500 points the past couple of weeks, I got curious how much the individual components in the DJIA influences the movement of the index itself. I had forgotten. Yes, I know: SPY or QQQQQQ (wait, how many Q’s are there?) is a more accurate indicator of general stock market movement. Yes, I understand that DJIA is calculated kinda wacky, but in my defense I read some CFA stuff (certified financial analysis) that said in any event they do track each other fairly closely. Besides: I have been following DJIA for at least 3 decades, and have a reasonably good feel for its dynamics.

CALCULATE HOW THE PRICE MVMT OF 1 STOCK ADDS TO THE DJIA

Divide the stock price change by the official divisor, currently, it is around 0.132. So, if BAC goes down one dollar, DJIA goes down about 7.5 points.

You can see how this is a problem: a one point move is a much bigger deal for BAC, which is around 7, than it is for IBM, which is around 162. Yet a one point change in either stock has the same effect on the DJIA.

OTHER FUN FACTS

Avg price of individual DJIA components = about $47

400 pt move in DJIA = total price movement in all components = about $53

400 pt drop = about $1.75 average drop for each and every component

 

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