What are INDICES ?
An index follows a specific market, sector, asset-class, concept or a combination of all or some of these to provide a unique, measurable number to investors. This number helps to trace and summarize movements for that selected combination.
Investors should note that indices are highly customized offerings and are based on complex calculation mechanisms. Indices can also be traded through other financial products such as Futures, Options, ETFs, etc., which adds another layer of complexity to trading index products.
It is important to understand the underlying computation, identify the dependencies and consider extreme case scenarios before making any choices or investment decisions.
S&P Dow Jones Indices (S&PDJI) – Indexing
S&P Dow Jones Indices, a joint venture of McGraw-Hill Financial and CME Group, offer more than 830,000 Indices, which can span across asset classes such as commodity, currency, fixed-income, futures, options, private equity and other alternative asset classes. The most popular are the S&P 500 and the Dow Jones Industrial Average (DJIA).
An index enables tracking of the performance of selected concepts/categories and associated financial products and serves as a benchmark for comparative performance measures of various investments. Indexes can range from being very broad based to extremely specific.
The plain vanilla Equity based Indices are the biggest lot among S&P Dow Jones Index offerings. Mostly targeted at a particular market, country or region, a further categorization is available by number of stocks included, large-medium-small cap, sector (blue chip, banking, aerospace) or concept (Sharia, Thematic).