Stock indexes like DJIA and NASDAQ tell a lot about the current economic trends and the performance of public companies.
Understanding how the stock market works is not very simple, but DJIA gives an idea about the top 30 blue-chip US companies whereas NASDAQ both indexes and allows trading in its electronic platform.
Key Takeaways
- DJIA represents 30 major US companies, whereas NASDAQ contains over 3,000 companies from various sectors.
- DJIA is a price-weighted index, while NASDAQ is a market capitalization-weighted index.
- NASDAQ is known for its technology-heavy listings, whereas DJIA includes companies from various industries.
DJIA vs NASDAQ
The DJIA is a stock market index that tracks 30 large. It is calculated by adding up the stock prices of the 30 companies and dividing by a divisor. The NASDAQ is market-capitalization weighted, meaning companies with a larger market capitalization have a greater impact on the index.
DJIA stands for Dow Jones Industrial Average, and is most commonly known as “The Dow.” People always confuse The Dow and the Dow Jones and Company, but they are different.
DJIA is one of the many indexes owned by S&P Dow Jones Indices LLC. Companies that are visible in the DJIA are known as the US’s biggest blue-chip companies.
NASDAQ stands for the National Association of Securities Dealers Automated Quotations. It refers to both the electronic exchange and the index.
People buy and sell stocks through the electronic exchange without going physically to a trading office. There are companies from various sectors that are traded on NASDAQ.
Comparison Table
| Parameters of Comparison | DJIA | NASDAQ |
|---|---|---|
| Type | NASDAQ refers to a global electronic marketplace for trading (selling and buying stocks) and market indexes. | NASDAQ contains stocks of more than 3,300 companies from various industrial sectors. |
| Diversification | DJIA indexes only 30 blue-chip companies in the US. | Charles Dow, along with his business partner Edward Jones created DJIA in 1896. |
| Index Weightage | The parameter for indexing depends on the market capitalization of the company. | The indexing parameter in NASDAQ is the price of the company stock. |
| Date of Inception | It indicates the performance of various companies, especially those in the technology sector. | NASDAQ was created in February 1971 as s subsidiary of the National Association and Securities Dealers (NASD). |
| Indicator | It indicates market and economic health. | It indicates the performance of various companies especially those in the technology sector. |
What is DJIA?
DJIA is a stock market index only for US companies’ top 30 blue-chip stocks. After the Dow Jones Transportation Average (DJTA), DJIA is the second oldest market index.
When DJIA was established in 1896, it was created as a proxy to signify the health of the US economy.
Today, it is one of the most-watched stock market indexes globally. The companies that are indexed in DJIA all have stable, consistent earnings.
In the initial days, DJIA only indexed 12 companies, and they were based in the industrial sectors of railroads, gas, sugar, cotton, oil, and tobacco.
With the change in the economic scenario over the years, the index’s composition also changes. This means that a component of DJIA can be dropped anytime it becomes unrelated to the current economy.
And the company dropped is replaced by another firm and relevant company. DJIA may also remove companies that suddenly become unstable financially after a considerable loss.
As the share price of the companies increases, greater weight is given to the indexing of that company.
When the company was established, Charles Daw calculated a simple average by adding the stock price of 12 companies and then dividing by twelve.
But now, many extra terms are added to the formula for situations like mergers or stock splits.
What is NASDAQ?
NASDAQ was created to establish an electronic system where investors can buy and sell stocks quickly and transparently.
Back when there was no internet or viable platform for online trading, people needed to go to a trading office and submit paper works for trading.
Since NASDAQ is a platform for indexing and trading, the term sometimes refers to the market index of the stocks listed and sometimes to the trading platform where more than 3,300 stocks are listed.
In NASDAQ, some of the most powerful tech companies in the world are listed. They include Google, Microsoft, Apple, Intel, etc.
When NASDAQ was established, it was under the parent company, NASD, but started operating as an independent platform in 2006.
In 2007, NASDAQ became NASDAQ OMX Group after merging with the Scandinavian exchange group, OMX, and this led the company to become the world’s largest exchange company.
The companies listed in the NASDAQ platform are all cutting-edge trading technology used by 90 exchanges across 50 countries.
NASDAQ is headquartered in New York, and operates 25 markets, including five central security depositories in the US and Europe.
Main Differences Between DJIA and NASDAQ
- DJIA only refers to a stock market index where it tracks companies listed in New York Stock Exchange (NYSE) and NASDAQ,, whereas NASDAQ is both a global electronic marketplace for trading as well as market indexes.
- DJIA indexes only 30 blue-chip companies in the US, whereas NASDAQ contains stocks of more than 3,300 companies.
- The parameter for indexing in DJIA depends on the market capitalization of the company, whereas NASDAQ depends on the price of the company stock.
- DJIA indicates market and economic health whereas NASDAQ indicates the performance of various companies, especially those in the technology sector.
- DJIA was founded late in the late 19th century, whereas NASDAQ was created just 50 years ago.
References
- https://www.sciencedirect.com/science/article/pii/S1044028313000392
- https://www.sciencedirect.com/science/article/pii/S187775031100007X
Last Updated : 13 July, 2023
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Chara Yadav holds MBA in Finance. Her goal is to simplify finance-related topics. She has worked in finance for about 25 years. She has held multiple finance and banking classes for business schools and communities. Read more at her bio page.
It’s really fascinating to see how the stock market has evolved over the years. The information about the NASDAQ creation was particularly interesting for me.
Despite being from different sectors, both indexes have a significant impact on the market. This is very interesting.
I thought I knew a lot about stock indexes, but this article had some details I wasn’t aware of. It’s great to learn something new!
The article provides a comprehensive comparison between DJIA and NASDAQ. It is well written.
The stock exchange can be really complicated, so it’s good to have resources like this to understand it better.
This is very informative and helpful for those who are interested in the stock market. DJIA and NASDAQ are both very important indicators.