No, it doesn't. The S&P 500 basically is the market. Any meaningful difference between it and the other US investable equities is marginally notable.
It's literally asking "How do these roughly 500 plus or minus largest stocks correlate with the largely the same basket of securities?"
If you took one company and compared it against the total US market, then you have something at least. If you take the market itself and compare it against itself, it makes no sense.
> If you took one company and compared it against the total US market, then you have something at least.
This is a common metric referred to as market beta.
> If you take the market itself and compare it against itself, it makes no sense.
S&P 500 and Russell 2000 are both broad market indices, but they perform differently. Even using the same index constituents with different weightings (e.g. equal vs cap weighted) can produce meaningfully different results. It makes plenty of sense to compare them.
I don't think you understand why multiple broad market indices exist in the first place. It has nothing to do with "performance" and everything to do with licensing fees when institutional organizations want to track against the market.
No one. No one is seriously looking at the Russell 3000 and comparing it to the Wilshire 5000.
To the child comment:
I'm talking about two total market indices, apples to apples, and you're talking about apples to oranges. NASDAQ is a stock exchange, not an index.
Further still, even if you were talking about the NASDAQ composite, they're two entirely different indices. They do not have the same goals. There might be some relative meaning there.
There isn't much meaning between comparing two or more indices that have the same goals and constituents. You're only tracking the differences between constituents at that point, and you wouldn't need beta to do that. You could just calculate the difference between the constituents that are not a part of the total set.
> No one. No one is seriously looking at the Russell 3000 and comparing it to the Wilshire 5000.
People compare indices all the time to assess relative performance (e.g. Russell to NASDAQ) or HY credit to IG.
Response to edits:
> I'm talking about two total market indices, apples to apples, and you're talking about apples to oranges. NASDAQ is a stock exchange, not an index.
NASDAQ composite is one of the most commonly referenced indices. There's also NASDAQ 100, on which one of the largest ETFs in the world (QQQ) is based.
> Further still, even if you were talking about the NASDAQ composite, they're two entirely different indices. They do not have the same goals.
That's why people compare indices -- they're interested in evaluating different aspects of the market.
> There isn't much meaning between comparing two or more indices that have the same goals and constituents. You're only tracking the differences between constituents at that point, and you wouldn't need beta to do that. You could just calculate the difference between the constituents that are not a part of the total set.
Weightings? An equal weighted index will reflect increased contribution from smaller companies versus a market cap weighting (compare ETFs SPY/RSP). Same constituents, different emphasis.
Index funds have tracking error, so it absolutely makes sense to ask for the ten index funds most correlated to the S&P 500. I'd expect a Vanguard S&P 500 ETF or similar to show up in the list, along with some competitive products.
Also, roboadvisors like Wealthfront trade strategies based on negative correlations within and between market indexes.
Reread my comment. I didn't say it was the market. I said it _basically is_ the market. See my comments about FT Wilshire and FTSE Russell.
Regrettably, I shouldn't have bothered replying at all, some HN readers think beta is a fundamental measure. It is not. Many sources get this wrong for some reason.
If you are looking at price movements, you are doing technical, not fundamental analysis.
Well I guess 80% of the market isn't basically the market by your definition is it and every major institution that uses the S&P 500 as a proxy for the US market is wrong, right? OK. Sure.
It's literally asking "How do these roughly 500 plus or minus largest stocks correlate with the largely the same basket of securities?"
If you took one company and compared it against the total US market, then you have something at least. If you take the market itself and compare it against itself, it makes no sense.