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What is an Index?
An index is a statistical measure of the changes in a portfolio of stocks representing a portion of the overall market.
It would be too difficult to track every single security trading in the country. To get around this, we take a smaller sample of the market that is representative of the whole. Thus, just as pollsters use political surveys to gauge the sentiment of the population, investors use indexes to track the performance of the stock market. Ideally, a change in the price of an index represents an exactly proportional change in the stocks included in the index.
Most indexes weigh companies based on market capitalization. If a company's market cap is $1,000,000 and the value of all stocks in the index is $100,000,000, then the company would be worth 1% of the index. These types of systems are made possible by computers - most are calculated by the minute, so they are very accurate reflections of the market.
It's important to note that an index is nothing more than a list of stocks.
What are Indices?
An index is a statistical measure of the changes in a portfolio of stocks representing a portion of the overall market.
It would be too difficult to track every single security trading in the country. To get around this, we take a smaller sample of the market that is representative of the whole. Thus, just as pollsters use political surveys to gauge the sentiment of the population, investors use indexes to track the performance of the stock market. Ideally, a change in the price of an index represents an exactly proportional change in the stocks included in the index.
Most indexes weigh companies based on market capitalization. If a company's market cap is $1,000,000 and the value of all stocks in the index is $100,000,000, then the company would be worth 1% of the index. These types of systems are made possible by computers - most are calculated by the minute, so they are very accurate reflections of the market.
It's important to note that an index is nothing more than a list of stocks.
What are Indices?