Comparing a Stock to it's Index

[THE WOLF2222]

Which equation would I use to draw a chart displaying a share's performance against it's underlying index. For example, Barclay's performace in line with the FTSE 100?

 

[tomorton]

Not as simple as that to do using your own maths but some software such as Sharescope will do it for you.

 

[THE WOLF2222]

Thanks for your answer - but I really want to know how I can do it myself, as I'm trying to learn the maths and just want to know. Any mathematicians out there? Grantfx?

 

[Lee Shepherd]

The ftse 100 is a weighted index so market cap will have an impact equivalent to the individual stock.

BP is the biggest by market cap and is responsible for the bigger movements, this then goes down to Barclays which rank #8. As movement per percentage point, BP moves 1% to shift 5 points, Barclays would have to move around 3% to have the same effect, even though Barclays market cap is just under half of BP's.

BP's market influence is measured at just over 7%
Barclays influence is measured at just under 2.7%

So if you were to draw a chart you'd have to monitor all 102 constituents to get a performance in line with the underlying market value.

Barclays being one of the 27 constituents in the financial sector will have a total weight of over 27%.

(all data correct as from end of year and is supplied without copywrite from FTSE group)

Which equation would I use to draw a chart displaying a share's performance against it's underlying index. For example, Barclay's performace in line with the FTSE 100?

 

[Lee Shepherd]

It could well be, at end of year HSBC was 2nd in weight and very close in percentage terms.

I thought HSBC was the biggest weight for some reason.

 

[A Dashing Blade]

1) BP - 7.441%
2) HSBC - 6.521
. . .
10) RBS - 2.786
. . .
12) Barc - 2.250

As you were.

 

[grantx]

Wolf,

A simple method would be compare the percentages changes of Barclays and the FTSE - probably short- and long term, eg 5-days and 20-days. Weightings and/or beta coefficients are irrelevant here because you are only using a single stock, not all the constituents.

Grant.

 

[THE WOLF2222]

Thanks Grant, I have a tendancy to over-complicate things.

 

[Splitlink]

Which equation would I use to draw a chart displaying a share's performance against it's underlying index. For example, Barclay's performace in line with the FTSE 100?

Isn't that relative strength, in some form?

Sharescope will allow you to download prices onto Excel. Once there, you can divide the price by the index or any other sector index or number that you choose. Then you can graph them. Is that what you are looking for? I think that you can download free from Yahoo!, but am not certain of that.

I used to do it from the FT, before the days of internet charting- A lot of work but I was younger then!--- Not all the shares but a dozen, or so, favourites. Actually, I used to call it relative strength but it seems to be a different method than SS uses. Better, too, IMO, but one's own work always is.

Split

 

[Rhody Trader]

I'm with Grant. If you just want to draw a line showing how a stock is doing relative to an index, the simplest way is to divide the stock by the index. When the line is rising, the stock is outperforming. When the line falls, the stock is underperforming.

 

[grantx]

John,

I was actually thinking of comparing two lines - the index and stock - but I reckon yours is simpler and better.

Grant.

 

[luckyd1976]

Use the "Compare" charting feature on most charting software.

 

[Rhody Trader]

John,

I was actually thinking of comparing two lines - the index and stock - but I reckon yours is simpler and better.

Grant.

If you want two lines, then to make them directly comparable, you would have to divide each by some initial base value. For example, if you were using IBM and the Dow you would divide IBM by its price at your chosen starting point and the Dow by it's starting value at that same point in time.