The exchanged-traded funds (ETF) that track the S&P 500 Index and the Dow Jones Industrial Average (DJIA) have essentially the same amount of risk associated with them. The S&P 500 ETF may have a slightly higher volatility than the ETF that tracks the DJIA, meaning it entails greater risk. On the other hand, the S&P 500 is more widely diversified. Thus, if one company in the DJIA goes down substantially, it will have a larger negative impact on the overall index.

Still, these ETFs have a high degree of correlation; most of the time, they move in the same direction to the same degree. They contain many of the same component companies; for example, Apple and Berkshire Hathaway are components of both indexes. As a practical matter, there is very little difference in the movement between the indexes.

S&P 500

The S&P 500 Index is constructed using a weighted average market capitalization, which means larger companies have a greater weighting in the index. A committee determines the component companies of the S&P 500. The committee uses guidelines for its decisions including market cap, liquidity, minimum float, profitability and balance. The committee meets regularly to review the index.

The SPDR S&P 500 ETF (NYSEARCA: SPY) is the largest ETF tracking the S&P 500 Index. It is very liquid, with an average daily trading volume of 146 million shares. SPY has $180 billion in assets under management (AUM) as of October 2015. It has a very low net expense ratio of 0.09%.

SPY has a three-year trailing standard deviation of 9.72. It also has a Sharpe ratio of 1.24 over the same period. It has a monthly volatility of 1.19%.

Dow Jones Industrial Average

The DJIA only contains 30 component companies, compared to the 500 companies in the S&P 500. The DJIA is the second-oldest stock index dating back to 1896. The Wall Street Journal's editors choose the companies that are included in the DJIA. There are no technical rules for inclusion in the index. The component companies must be substantial enterprises that represent a significant portion of the economic activity in the U.S. Apple joined the DJIA in March 2015.

The SPDR Dow Jones Industrial Average ETF (NYSEARCA: DIA) is the largest ETF tracking the DJIA. It had $156 billion in AUM as of October 2015. DIA has a slightly larger three-year trailing standard deviation of 10.06. It also has a slightly lower Sharpe ratio of 0.91. The monthly volatility is also marginally lower at 1.08%.

High Correlation

As with the indexes they track, SPY and DIA have a very high degree of correlation. The six-month correlation for the two ETFs was 0.98 as of October 2015. A perfect positive correlation is 1, while a perfect negative correlation is -1. The correlation between SPY and DIA is almost perfectly positive. There is very limited deviation in movement between the prices for both ETFs.

The high degree of correlation is due to the similar component companies of each index. The DJIA contains only very large companies. Most of these companies are also included in the S&P 500. Since the S&P 500 is constructed by the weighted average market cap, larger companies have a greater influence on movement in the index. For example, Apple has a market cap of $657 billion, as compared with Colgate-Palmolive, which has a market cap of only $61 billion. Movements in the price of Apple have a larger impact on the overall level of the S&P 500 than those of Colgate-Palmolive. This means the two indexes move closely together.