what is stock index?

An index is a statistical measure of change in stock price over time. It falls into the general category of financial indicators used to monitor performance. There are many indexes, but they fall into two major categories: those that measure specific industries and those that measure general market movements. Market indices include the Dow Jones Industrial Average (DJIA) and S&P 500, and both types of index are used in broad-market stock portfolios.

Stock index can consist of an overall market or a specific sector (such as technology stocks, utility companies or financial service firms). By comparing the changes in various indexes, you can find out more about what’s happening with the market that your portfolio is invested in. When people refer to the market, they’re usually talking about the Dow or S&P 500, which together make up half of the value of U.S. stock markets (the other half is made up of international stocks).

How do you calculate stock index?

There are two main types of indexes: capitalization-weighted and equal-weighted.

Capitalization-weighted indexes tend to be the larger companies within a given industry, often representing about 80% of its value. For example, the 30 stocks in the Dow Jones Industrial Average are weighted based on their market capitalization (the total value of all outstanding shares). If Company A has twice the market capitalization of Company B, it has twice the weighting in the index. If Company C has half the market cap of Company A, it will have half its weighting.

Equal-weighted indexes would be more ideal for representing an industry since they give every stock an equal portion of the index’s value (such as the equal-weighted S&P 600, which is made up of small-capitalization companies).

Stock indexes can track an individual stock or a basket of stocks. An index tracking a basket is often referred to as an exchange-traded fund (ETF), which invests in an underlying portfolio matching its target index. For example, if you wanted to replicate the Standard & Poor’s 500 index, you could buy shares in an ETF that holds every stock in that index.

How do you calculate return on investment (ROI) with stock index?

ROI is a popular metric used by investors and businesses alike to measure performance against cost and benchmark success of stock indexes.The formula for ROI is:

ROI = (Gain from Investment – Cost of Investment) / Cost of Investment

Let’s say you bought $10,000 worth of stocks in Company XYZ. A year later, those stocks are now worth $12,000. That means the ROI for this stock is 20%. Now let’s say you bought $10,000 worth of stock in Company ABC. A year later, those stocks are now worth $9,000. That means the ROI for this stock is -10%.

ROI = (Gain from Investment – Cost of Investment) / Cost of Investment

ROI = [($12,000-$10,000) / $10,000] = 20%

ROI = [-$9,000/-$10,000] = -10%

How do you calculate volatility with stock indexes?

Volatility is defined as the amount of uncertainty or risk about the size of changes in a security’s value. A higher volatility means that a security’s value can potentially be spread out over a larger range of values. This means that the price of the security can change dramatically over a short time period in either direction. A lower volatility means that a security’s value does not fluctuate dramatically, but changes in value at predictable intervals.

The standard deviation is one measure of historical volatility, and can be calculated as:

Standard Deviation = (Current Price – Previous Close) / (Previous Close – Previous Low) x 100%

Stock index has a higher level of volatility than bonds. For example, the S&P 500 Index moved 12.5 percent in the last quarter of 2011 and 8.5 percent for all of 2011, while a five-year treasury bond barely moved during the same time period.

Generally speaking, a higher volatility means that a security’s value will go up and down more dramatically. This doesn’t mean that COST will actually go up and down more frequently or by larger amounts, but the price changes could theoretically be as large as the volatility. A lower volatility means that a security’s price will neither go significantly higher nor lower than the expected mean, but will fluctuate at predictable intervals around the mean.

How do you calculate beta with stock index?

Beta is a measure of how much a stock moves relative to the market (or benchmark). For example, if Company XYZ has a beta of 1, it will move the same as the market. If Company XYZ has a beta of 2, it will be twice as volatile (or risky) as the market. A company with a higher beta means that its stock price is more sensitive to broader market movements than a company with a lower beta.