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".

BREAKING DOWN '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.


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RELATED FAQS
  1. What is the difference between arithmetic and geometric averages?

    An arithmetic average is the sum of a series of numbers divided by how many numbers being averaged. However, geometric average ... Read Answer >>
  2. What's the difference between the Dow Jones Industrial Average and the S&P 500?

    The DJIA is a price-weighted average of 30 stocks whereas the S&P 500 is a market value-weighted index of 500 stocks. Read Answer >>
  3. How is the value of the S&P 500 calculated?

    The S&P 500 is a U.S. market index that gives investors an idea of the overall movement in the U.S. equity market. The value ... Read Answer >>
  4. What does the Dow Jones Industrial Average measure?

    The Dow Jones Industrial Average (DJIA) is a price-weighted index that measures the daily price movements of 30 large American ... Read Answer >>
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