The stocks index is a tool used by financial managers and investors for overlooking the market conditions and compare the return on specific investments. The stock indexes are relatively easier to interpret and indicate live performance increasing their importance around the world.
The stock index is also used as a tool for investment decisions before diversifying the portfolio. For e.g. a number of Mutual Funds compare their returns to the return in the S&P 500 displaying to the investors how their funds are performing in tandem with the stock index.
It is also used for a benchmark around the world to give a quick indication of how the stocks of other sectors are performing. The movement also has a domino effect on other factors such as Political and economy overall. The stock index gives a quick indication of the direction in which the market is moving and also which industry/company is driving the change.
List of Top 5 Types
of Stock Index
Standard & Poor 500 (S&P 500)
S&P 500 is a large and diverse stock index made up of 500 of the most widely traded stocks especially in the USA. Since the USA is an epicenter of the financial activities impacting across the world, this index gives a good indication of movement in the US as a marketplace.
Firms from various sectors are included in this index such as:
It’s a stock market index of the US which measures the performance of around 3,000 companies including foreign companies. Predominantly, known for technology-based companies such as Google, Apple, and other firms in the growth stages, the NASDAQ also measures stocks from other sectors such as:
DJIA (Dow-Jones Industrial Average)
The DJIA is one of the oldest and well-known indices in the world comprising 30 major companies belonging to the industry leaders which significantly contribute to the industry and stock market. Since it represents a large section of the US market, a percent change in the Dow should not be interpreted as an equal change in the overall market. This is due to the price-weighted function. For e.g., if the value of one stock falls from say $450 to $50, the entire stock market index may fall by around 3,000 points since the quantum of one stock weighs heavily on the base of 30 firms.
FTSE 100 Index (Financial Times Stock Exchange)
Stock index consists of 100 companies listed on the London Stock Exchange with the highest market capitalisation which is maintained by the FTSE Group (the subsidiary of the London Stock Exchange Group). Many of these 100 firms are internationally focussed and hence may not be the best indicator of the UK economy is functioning and are significantly impacted by the exchange rate of the Pound. The FTSE 250 stock market index could be considered since it includes a smaller proportion of international firms.
Stock index is a family of global equity indices from FTSE Russell permitting investors which track the performances of specific market segments. Many mutual funds or ETF fund managers use FTSE Russell as benchmarks for measuring their respective performances. The most established index in the series is Russell 2,000 which exclusively tracks the US small-cap stocks of the Russell 3,000 stocks.