Composite Index

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DEFINITION of 'Composite Index'

A grouping of equities, indexes or other factors combined in a standardized way, providing a useful statistical measure of overall market or sector performance over time.

Also known simply as a "composite".

BREAKING DOWN 'Composite Index'

Usually, a composite index has a large number of factors which are averaged together to form a product representative of an overall market or sector. For example, the Nasdaq Composite index is a market capitalization-weighted grouping of approximately 5,000 stocks listed on the Nasdaq market. These indexes are useful tools for measuring and tracking price level changes to an entire stock market or sector. Therefore, they provide a useful benchmark against which to measure an investor's portfolio. The goal of a well diversified portfolio is usually to outperform the main composite indexes.

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