In plain terms — One number summarizing how a basket of stocks is doing — like a «market average». S&P 500, FTSE MIB, DAX are examples.
An index aggregates prices (or capitalization) of a set of issues into one number — e.g. S&P 500, FTSE MIB, DAX.
| Use | Description |
|---|---|
| Benchmark | Compare issue or fund performance vs market |
| Proxy | Trade the whole market via ETF or index futures |
| Analysis | Study cyclicity and correlations at aggregate level |
The DJIA is often used in aggregate cyclic analysis spectral studies (see djia-spectral-decomposition-hurst).
Index vs single issue
Single issues share part of index motion (market correlation) but have idiosyncratic components (fundamentals, sector). Cyclic analysis often starts from the index for context, then moves to the single name; volumetric analysis helps gauge whether index moves have conviction behind them.