Rise opening for DAX, which opens on Friday, July 29 with slight increases of 0.57%, to 13,357.78 points, after opening. Compared to previous dates, the DAX chain three sessions in a row in green.
If we consider the data of the last seven days, the DAX marks a rise of 0.79%; Despite this, for a year it has still accumulated a drop of 15.16%. The DAX it is 17.91% below its maximum so far this year (16,271.75 points) and 7.71% above its minimum value for the current year (12,401.20 points).
What is a stock index and what is it for?
A stock index is an indicator used to show the evolution of the price of a certain set of assets, for which it collects data from various companies or sectors of a part of the market.
These indicators are mainly used by the stock exchanges of different countries and each one of them can be integrated by firms with certain characteristics, such as having a similar market capitalization or belonging to the same type of line of business, in addition, there are some indices that only take consider a handful of shares to determine its value or others that consider hundreds of shares.
Stock indices serve as an indicator of confidence in the stock market, business confidence, the health of the national and global economy, and the performance of investments in a company’s stocks and shares. Generally, if investors lack confidence, share prices tend to fall.
They also work to measure the performance of an asset manager and allow investors to have comparisons between return and risk; measure the opportunities of a financial asset or create portfolios.
These types of indicators began to be used at the end of the 19th century after the journalist Charles H. Dow. He looked closely at how company stocks tended to go up or down together in price, so he created two indices: one containing the top 20 railroad companies (since it was the biggest industry at the time), as well as 12 actions of other types of businesses
Currently in humanity there are various indices and they can be agglomerated depending on their geography, sectors, company size or also the type of asset, for example, the Nasdaq US index is made up of the 100 largest companies largely related to technologies such as Apple (AAPL), Microsoft (MSFT), Amazon (AMZN), Facebook (FB), Alphabet (GOOG), Tesla (TSLA), Nvidia (NVDA), PayPal (PYPL), Comcast (CMCSA), Adobe (ADBE).
How is it calculated and how to read them?
Each stock index has its own way of being measured, but the main component is the market capitalization of each firm that is part of it. This is obtained by multiplying the value of the day of the bond in the corresponding stock market by the total number of shares that are in circulation in the market.
Companies listed on the stock exchange are required to present a balance of their composition. Said report must be disclosed every three or six months, as appropriate.
Reading a stock index also requires paying attention to its variations over time. Current indices always start with a fixed value based on the prices of the securities on their start date, but not all follow this method. Therefore, it can lead to failures.
If one index adds 500 points in a day, while another only adds 20, it might seem that the first index performed better. However, if the former started the day at 30,000 points and the other at 300, it can be concluded that, in percentage terms, the gains for the latter were more remarkable.
Major stock indices
Among the main stock market indices in the United States is the Dow Jones Industrial Average, better known as Dow Jones, of which 30 companies are part, the S&P 500, which includes 500 of the largest companies on the New York Stock Exchange. Finally, we must mention the Nasdaq 100, which links 100 of the largest non-financial firms.
On the other hand, the most important indices in Europe are the Eurostoxx 50, which covers the 50 most important companies in the eurozone. On the other hand, the DAX 30, the main German index that contains the most outstanding companies on the Frankfurt Stock Exchange; the FTSE 100 of the London Stock Exchange; the CAC 40 of the Paris Stock Exchange; and the IBEX 35, of the Spanish stock market.
In Asia, the main stock indices are the Nikkei 225, made up of the 225 largest companies on the Tokyo Stock Exchange. There is also the SSE Composite Index, which is seen as the most solid in China, made up of the most relevant companies on the Shanghai Stock Exchange. The same role played by the Hang Seung Index in Hong Kong and the KOSPI in South Korea.
Regarding Latin America, there is the IPC, which contains the 35 most consolidated firms of the Mexican Stock Exchange (BMV). At least a third of them are owned by magnate Carlos Slim.
Another is the Bovespa, made up of the 50 most important companies on the São Paulo stock exchange; the Argentine Merval; the IPSA of Chile; the MSCI COLCAP of Colombia; the IBC of Caracas, made up of 6 companies from Venezuela.
Likewise, there are other types of global stock indices such as the MSCI Latin America, which includes the 137 most important companies in Brazil, Chile, Colombia, Mexico and Peru.
Similarly, there is the MSCI World, which includes 1,600 companies from 23 developed countries; the MSCI Emerging Markets, made up of more than 800 companies from developing countries; and the S&P Global 100, made up of the 100 most powerful multinational firms on the planet.