Trading Sectors

[TheReverend]

Hi all,

I've only been trading the UK sectors for a few weeks, and I've noticed that the sector movement doesn't reflect the individual movement of shares within the sector. Is this the market makers working their 'magic' again, or are individual share movements not the main indicator within a market sector?

Many thanks

TheRev.

 

[tomorton]

The influence an indivudual share has on the sector index is in proportion to the market capitalisation of each member share in the sector, its not a simple averaging. For example, the tobacco sector has only two members, BAT and Imperial. As BATS is twice the market cap of IMT, a % movement of its price will have twice the influence on the secor index as the same % move in IMT's. In Pharmaceuticals, there are 91 shares listed, but the sector index is dominated by Glaxo and Astra: it would be possible for 89 of these shares to go down, but if Glaxo and Astra go up, the sector index will probably rise.