Average


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Related to Average: standard deviation

Average

An arithmetic mean return of selected stocks intended to represent the behavior of the market or some component of it. One good example is the widely quoted Dow Jones Industrial Average, which adds the current prices of the 30 DJIA stocks, and divides the results by a predetermined number, the divisor.

Average (across-day) measures

An estimation of price that uses the average or representative price of a large number of trades.

Average

A simple way to calculate the relative price of an index of stocks that involves adding the prices of all the stocks in the index and dividing by the total number of stocks. Market averages may be weighted, for example, for price or market capitalization. Movements in the market average of an index are considered a way to observe trends in the health of the companies represented in it. Some market averages are taken as an indicator of health in the broader economy; prominent examples of this include the Dow Jones Industrial Average and S&P 500 indices.

average

See averages.

Average.

A stock market average is a mathematical way of reporting the composite change in prices of the stocks that the average includes.

Each average is designed to reflect the general movement of the broad market or a certain segment of the market and often serves as a benchmark for the performance of individual stocks in its sphere.

A true average adds the prices of the stocks it covers and divides that amount by the number of stocks.

However, many averages are weighted, which usually means they count stocks with the largest market capitalizations more heavily than they do others. Weighting reflects the impact that the stocks of the biggest companies have on the markets and on the economy in general.

The Dow Jones Industrial Average (DJIA), which tracks the performance of 30 large-company stocks, is the most widely followed market average in the United States.

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