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.
DJIA vs NASDAQ
The main difference between DJIA and NASDAQ is that DJIA is only an index whereas NASDAQ is both an index and an electronic exchange that means investors can buy and sell stocks in NASDAQ in an online mode. The DJIA contains only the price-weighted average of the top 30 stocks that are traded on NASDAQ whereas NASDAQ tracks more than 3,300 stocks.
DJIA stands for Dow Jones Industrial Average and it is most commonly known as “The Dow.” People always confuse The Dow and the Dow Jones and Company but they are not the same. 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 index. Through the electronic exchange, people buy and sell stocks without going physically to a trading office. There are companies from various sectors that are traded on NASDAQ.
Comparison Table Between DJIA and NASDAQ
| Parameters of Comparison | DJIA | NASDAQ |
| Type | DJIA only refers to a stock market index where it tracks companies listed in New York Stock Exchange (NYSE) and NASDAQ. | NASDAQ refers to a global electronic marketplace for trading (selling and buying stocks) as well as market indexes. |
| Diversification | DJIA indexes only 30 blue-chip companies in the US. | NASDAQ contains stocks of more than 3,300 companies and from various industrial sectors. |
| 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 | Charles Dow along with his business partner Edward Jones created DJIA in 1896. | 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 the top 30 blue-chip stocks of US companies. After the Dow Jones Transportation Average (DJTA), DJIA is the second oldest market index. When DJIA was established back 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 across the globe. 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 composition of the index 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 strong and relevant company. DJIA may also remove companies that suddenly become unstable financially after a huge loss.
As the share price of the companies increases, greater weight is given in the indexing of that company. Initially, when the company was established Charles Daw calculated a simple average by adding the stock price of 12 companies and then diving by twelve. But now many extra terms are added in 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 in a speedy, and transparent way. Back in the days 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 both 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 lead the company to become the world’s largest exchange company.
The companies listed in the NASDAQ’s platform are all cutting-edge trading technology that is used by 90 exchanges across 50 countries. NASDAQ is headquartered in New York and the company operates 25 markets that also include 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 for 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.
Conclusion
Both the NASDAQ and DJIA are important barometers to assess the health of the economy. Since the major US companies are present across countries and borders, the NASDAQ and DJIA are widely used as a barometer of the world economy as well. The NASDAQ and DJIA are similar in many ways, but a few subtle differences need to be kept in mind while drawing insights and making long-term predictions of economic conditions.
References
- https://www.sciencedirect.com/science/article/pii/S1044028313000392
- https://www.sciencedirect.com/science/article/pii/S187775031100007X