A price-weighted index is a stock market index where each component stock contributes to the index in proportion to its price per share, meaning higher-priced stocks have a greater impact on the index's overall performance. This method can lead to distortions as it does not consider the relative size or market capitalization of the companies within the index.

Price-Weighted Index

price-weighted index

A stock market index is a statistical measure that reflects the composite value of a selected group of stocks, providing a snapshot of market trends and investor sentiment. It serves as a benchmark for portfolio performance and helps investors make informed decisions by tracking the performance of specific sectors or the overall market.

stock market index

component stock

Price per share is the current market price of a single share of a company's stock, reflecting the value investors are willing to pay based on expected future earnings and market conditions. It is a crucial metric for evaluating stock performance and making investment decisions, influenced by factors like company financials, investor sentiment, and economic indicators.

price per share

higher-priced stocks

impact on the index

overall performance

Market capitalization represents the total market value of a company's outstanding shares of stock and is calculated by multiplying the current share price by the total number of outstanding shares. It is a critical metric used by investors to determine the size of a company and assess its relative risk and growth potential compared to peers in the industry.

market capitalization

Relative size refers to the comparison of the size of one object or entity to another, often used to understand scale, proportion, or significance in various contexts. It is a fundamental concept in fields ranging from art and design to physics and biology, enabling the analysis of relationships and hierarchies within systems.

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