Dow Jones CDX
Candlefocus EditorThe CDX index is seen as an important tool for investors looking for exposure to the credit markets. It enables a quick, cost-effective way of reducing risks and hedging portfolios of underlying CDSs. These are otherwise traded individually over the counter (OTC) and the CDX index practically puts all that data in a basket, giving investors a comprehensive overview of the market.
The Dow Jones CDX tracks CDSs from North American and global companies, including Investment Grade as well as High Yield. Currently, the index consists of 124 constituents and it is updated quarterly. Stocks in the index are sub-divided into NA Index, IE High Yield, IG High Yield and IG Investment Grade categories.
To buy exposure to the index, investors simply buy the CDX itself. They can buy an exchange-traded fund that tracks the CDX or create an over-the-counter derivative. This allows them to gain exposure to credit markets without having to purchase each CDS individually. Investors can also trade the CDX via futures and options contracts.
The Dow Jones CDX index has been around for quite some time and is one of the best known benchmarks for measuring credit risk. Its complicated yet effective structure enables investors to hedge their CDS portfolios and to access the credit markets with ease.