Creating an Index

Hello traders,

Can someone please tell me how does one go about creating an index?

For example, if I followed 10 of my favourite stocks, how would I go about creating an index of those stocks?

Cheers

Carlton

Add up the close price and divide by ten.

Mr Soros said:

Add up the close price and divide by ten.

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I'm sure that's not how DJIA is calculated .....

Or if you want to create a weighted FTSE type index you need to multiply each of the close prices by the total number of shares in that company, add all the totals up and then divide the lot by the total number of shares in all companies.

Thanks responding,

Ideally, I would like to create my own index with Excel. It needn't be a weighted index.

There are two basic ways to create and index. One is price-weighted, which is how the Dow is done, not unlike what Mr Soros said. It's not as straightforward as that these days because of all the splits and whatnot that have taken place (requiring adjustments to be made to the price weighting), but the idea is the same. The other is market cap weighted, which is how the S&P 500 is done.

You can, of course, come up with variations. It just depends on to what end you're working. If you want the index to replicate a portfolio, set it up based on how you'd build that portfolio.

Rhody,

I understand.

Thanks dude

Rhody Trader said:

There are two basic ways to create and index. One is price-weighted, which is how the Dow is done, . . . The other is market cap weighted, which is how the S&P 500 is done.

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And the third is market cap with dividends reinvested (ie DAX and DJ-Stoxx I belive)

also market value-weighted, sometimes this can be used in index. for different kind of stocks.