What are Stock Indices?

What are Stock Indices?
Stock indices are benchmarks that track the performance of a specific group of stocks, representing a particular segment of the market. They provide a snapshot of market trends, helping investors gauge overall market health. Major indices, like the S&P 500, the Dow Jones Industrial Average (DJIA), and the Nasdaq Composite, cover large, diversified sets of companies, often representing different industries or sectors.

Stock indices are calculated based on the market capitalization or the price of their constituent stocks. For example, the S&P 500 is a market-cap-weighted index, meaning larger companies have a more significant impact on its value.

Investors use indices as reference points to compare the performance of individual stocks or portfolios. Indices can also be traded directly through financial products like exchange-traded funds (ETFs) or index futures, making them integral tools for both passive and active investment strategies.

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