Question: The Dow Jones Industrial Average (DJIA)and the Standard & Poor's 500 Index (S&P 500) are both used to measure the performance of the stock market. The DJIA is based on the price of stocks for 30 large companies: the S&P 500 is based on the price of stocks for 500 companies. If both the DJIA and S&P 500 measure the performance of the stock market, how are they correlated? The following data show the daily percent increase or daily percent decrease in the DJIA and S&P 500 for a sample of nine days over a three-month period (The Wall Street Journal. January 15 to March 10. 2006).
a. Show a scatter diagram.
b. Compute the sample correlation coefficient for these data.
c. Discuss the association between the DJIA and S&P 500. Do you need to check both before having a general idea about the daily stock market performance?