How Is Dow Jones Composite Index Calculated?

The Dow Jones Composite Index, also called the Dow Jones Composite Average, is one index owned by the Dow Jones & Company. The Dow Jones Composite Index is an index that consists of sixty five different stocks, which represent the same number of companies. This index includes fifteen utility stocks, twenty transportation stocks, and thirty industrial stocks. The Dow Jones Composite Index is meant to be used as a index for the broad market, but it is different from other indexes intended for the broad market because it is not an index that is weighted by market capitalization. Instead it is weighted by price and is reported in points, not in dollars or other currency. This means that a large company in the index with a low stock price will have a much smaller effect on the Dow Jones Composite Index than a small company with a high stock price will.

How is the Dow Jones Composite Index calculated though? Every stock that is included in the index are all added together, and then the total amount is divided by a specific number. The Dow Jones Composite Index is a combination of stocks from the Dow Jones Utility Average, the Dow Jones Industrial Average, and the Dow Jones Transportation Average. The editors of the financial paper The Wall Street Journal, also owned by Dow Jones & Company, determine which stocks are included in the index. Calculating the Dow Jones Composite Index is simply finding the average for all the stocks listed on this index, and this has lead to criticism.

There are some traders and critics who feel that the Dow Jones Composite Index does not give an accurate view of the American economy, because utility and transportation stocks make up more than half the index. This index does give an accurate picture of the total economic state of the United States, though, in very broad terms. Many traders watch the Dow Jones Composite Index along with other indexes, both those from Dow Jones and from other markets and indexes around the world. The Dow Jones Transportation Average and the Dow Jones Utility Average reflect the situation of these sectors very well. Some traders prefer to watch the Dow Jones Industrial Average closely, believing that this index more accurately reflects the state of the economy better than the Dow Jones Composite Index.

Calculating the Dow Jones Composite Index does not involve any complex calculations or long algebraic problems. It is simply an average of all stocks that have been picked and are listed on the index. The Dow Jones Composite Index is not the only composite index available, there is also the NASDAQ Composite Index, the NYSE Composite Index, and the S&P Composite Index, to name just a couple. The Dow Jones Composite Index is the most well known broad market index around the world, even with the critics, and it is very closely watched in many different countries. Any trader that wants information about the entire market will look at the composite indexes to do so, and the Dow Jones Composite Index is the most well known. Whenever financial news and reports talk about the market, they usually get information from Dow Jones & Company. Knowing how the Dow Jones Composite Index is calculated will help you better understand the numbers, and what the market is doing.

The information supplied in this article is not to be considered as medical advice and is for educational purposes only.