A method of measuring something’s worth in relation to its past values or another established standard or benchmark. It may also be referred to as a financial tool that is used to aggregate various prices or data points. An index is a valuable tool for monitoring the price of a specific item or basket of assets because it is often calculated as a single value from a range of prices and quantities over a specific time period.
Indexes are often employed in financial markets to track the performance of the stock market through a statistical measure of changes. They function as a tiny sample that represents a larger section of the stock market overall.
Although each index has its own set of guidelines and methods for calculation, in theory, an index’s value variation should represent an exactly proportional change in the stocks. As a result, a 5% change in one index should correspond to an average 5% change across all stock markets taken into account in the computation.
