Arithmetic Index

AAA

DEFINITION of 'Arithmetic Index'

An index of securities that uses an arithmetic sum to determine changes in the index without taking the relative size of the securities into account. An arithmetic index of stocks does not incorporate weightings based on market capitalization, price, or any other metric, but merely calculates the raw changes in each component, then divides the sum by the number of index components.

Also known as an "unweighted index".

INVESTOPEDIA EXPLAINS 'Arithmetic Index'

Most stock indexes are market-cap weighted, which means that the largest companies will exert a larger influence on the index that the smallest. The Standard & Poor's 500 Index and the Nasdaq-100 are both market-cap weighted, while the Dow Jones Industrial Average (DJIA) is price-weighted. The Value Line index is calculated arithmetically, although few other major indexes fail to account for the size of their components in some way.


RELATED TERMS
  1. Arithmetic Mean

    A mathematical representation of the typical value of a series ...
  2. Market Capitalization

    The total dollar market value of all of a company's outstanding ...
  3. Standard & Poor's 500 Index - S&P ...

    An index of 500 stocks chosen for market size, liquidity and ...
  4. Geometric Mean

    The average of a set of products, the calculation of which is ...
  5. Capitalization-Weighted Index

    A type of market index whose individual components are weighted ...
  6. Market Value

    The price an asset would fetch in the marketplace. Market value ...
Related Articles
  1. Bonds & Fixed Income

    How Now, Dow? What Moves The DJIA?

    Find out how this index tracks market movements and where it falls short.
  2. Mutual Funds & ETFs

    Benchmark Your Returns With Indexes

    If your portfolio is always falling short, you may not be making an apples-to-apples comparison.
  3. Investing

    How do I find mutual funds that track indexes?

    The two best sources for finding index funds are Fidelity Investments and Vanguard.Of the 57 index funds in investment research firm Morningstar's database, two fund companies account for 39 ...
  4. Economics

    The Enduring Importance Of The DJIA

    The Dow Jones Industrial Average (DJIA) continues to be an important indicator of the economy, though some say the DJIA doesn't have the same import as it once did.
  5. Investing Basics

    What Does The Dow Jones Industrial Average (DJIA) Quote Represent?

    “The Dow” is regarded as the “pulse of the stock market,” as it is one of the most quoted and followed stock market indices by investors, market professionals and media.
  6. Investing Basics

    Is the Dow Jones a public company?

    Find out how the Dow Jones Industrial Average tracks the health of the U.S. economy. This fluctuating number indicates the strength of investor portfolios.
  7. Investing Basics

    Is the Dow Jones a stock exchange?

    Learn about the Dow Jones Industrial Average and its impact. This historically significant index provides a daily snapshot of American financial markets.
  8. Economics

    Where was the Dow Jones when Obama took office?

    Find out the value of the Dow Jones Industrial Average on the Jan. 20, 2009 inauguration of President Obama and how it has performed since.
  9. Explain the logic behind government loans, how they work, why are they so big in the U.S and how they have an influence in the economy of the U.S and potentially abroad
    Economics

    An Introduction to Government Loans

    Government loans further policymakers' efforts to create positive social outcomes by offering timely access to capital for qualified candidates.
  10. Investing

    When can you trade the stocks in the Dow Jones Industrial Average (DJIA)?

    Find out when you can trade shares linked to the Dow Jones Industrial Average during NYSE and Nasdaq trading sessions.

You May Also Like

Hot Definitions
  1. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's balance sheet as a liability, until the services have been ...
  2. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  3. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
  4. Simple Interest

    A quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate ...
  5. Special Administrative Region - SAR

    Unique geographical areas with a high degree of autonomy set up by the People's Republic of China. The Special Administrative ...
  6. Annual Percentage Rate - APR

    The annual rate that is charged for borrowing (or made by investing), expressed as a single percentage number that represents ...
Trading Center