Impact Of Rebalancing On Dow Jones Industrial Average Performance

Jun. 14, 2022 10:52 AM ETCRM, DJI, HON, RTH, TRV, V, UNH, AAPL, XOM6 Comments2 Likes
Michael Harris profile picture
Michael Harris


  • On August 31, 2020, Exxon was removed from Dow Index and replaced by Salesforce.
  • From the rebalance date to June 10, 2022, the stock of Exxon is up 174%, while the stock of Salesforce is down 34%.
  • We provide data that quantify the impact of rebalancing since the bottom of GFC on Dow Index performance.

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An analyst in social media observed the wide divergence in performance between Exxon (XOM) and Salesforce (CRM) since the latter replaced the former in the Dow index (DJI). The stock of Exxon is up 174% while the stock of Salesforce is down 34%.

The particular divergence does not reflect the effectiveness and impact of rebalancing on the Dow index. It can create a false impression for those who rely on limited information and selection bias.

Below is a table that shows all rebalancing actions in the Dow index since the bottom of the GFC. Removed stock tickers are shown in red, and added tickers in blue. I also calculate the return of the stocks from the rebalancing date to June 10, 2022. If there is more than one replacement on a specific date, I also calculate the average performance of the group.

Dow Jones Industrial Average Rebalancing With Performance

Dow Jones Industrial Average Rebalancing With Performance (Price Action Lab Blog - Norgate Data)

I have marked the best introductions to the Dow index in bold: UnitedHealth Group (UNH) +900.2%, Apple (AAPL) + 371%, The Travelers (TRV) + 435.2%, and Visa (V) +326.2%.

All in all, the average performance of stocks removed to June 10, 2020, is 72.7% versus 208.2% for stocks added to replace them.

Conclusion: Those who rebalance the Dow Jones Industrial Average have done a good job. The Exxon example is based on selection bias. The average performance of added stocks is higher than that of the removed stocks by nearly a factor of 3. This is a quite significant result.

Caveat emptor: There is a certain reflexivity effect when a stock is added to a major index such as the Dow. A good fraction of the outperformance of an added stock versus a removed stock could be due to portfolio rebalancing. Yet, the effect shown in the above table is too large to be solely due to reflexivity. A counterexample is Raytheon (RTX), which is up 60% since being replaced in the Dow index, versus 14.3% for the best performance by Honeywell (HON), which was added.

This article was written by

Michael Harris profile picture
Ex-fixed-income quant. Ex-hedge fund quant trader. Worked on developing bond portfolio optimization software and trading systems for commodities and stocks, as a trader for a hedge fund. Author of "Short-Term Trading with Price Patterns" (1999), "Stock Trading Techniques with Price Patterns" (2000), "Profitability and Systematic Trading" (2008), and "Fooled By Technical Analysis" (2016). Michael Harris holds a Master's degree in Operations Research, with an emphasis in forecasting and financial engineering, and another Master's degree in Mechanical Engineering. Website:

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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