Thanks Gary. While I don't understand the explanation of how the equal dollar weighted index is derived, I just wanted to make sure it was equal dollar weihted and not price or cap weighted. I'm using another index (bullish % index) that is equal dollar weighted to arrive at its calculations and wanted to make sure the QP industry indexes are in fact equal dollar weighted so I can compare "apples to apples".
garylyb <[EMAIL PROTECTED]> wrote: Hi We use the HGS software to build those indexes every week. They ar ebuilt using the equal dollar weighted method, I've included the entry from the help file below. Best regards, Gary Lyben Equal Dollar Weighted Index General comment about Equal Dollar Weighting: Equal dollar weighting means that on the start date of the index an equal amount of money is invested in each stock. This will "purchase" a different number of shares of each stock. That start date is then scaled to a value of 100. Then each day after that the value of the index is computed. As a result percent changes in the index have little correlation with average gain of stocks (unless you make the index a price average index). In addition due to the scaling to 100 on the index start date the percents will be very different. The two things are vastly different. This is why HGSI has the Group performance analysis tool (in the Designer) to compute the performance of stocks and not an index percent change. The GPA solves the start date issue as well percent differences. Not that HGSI indexes are wrong, they just don't correlate 100% when you try to do a manual % change calculation of dates looking at chart values. And shouldn't. Detailed explanation of Equal Dollar Weighting: One means of calculating cumulative price performance of a group of securities is by creating an equal-dollar weighted index. An equal-dollar weighted index calculates the performance of a group as if you invested the same amount of money in each security. For each security in the index, the HGSI calculates the number of shares you could buy given an investment amount on the Index's base date (Investment Amount / Base Price). The number of shares calculated are not rounded resulting in fractional shares. In this case where you want equal contributions from each security, fractional shares work well. On a daily basis, the HGSI computes how much those shares are worth using the current days closing share price to determine your position value. (current price - base price) * # shares purchased + investment amount) The position value for each of the securities that make up the index are added together. This total is divided by the total amount of money invested in this index. This number is then normalized by multiplying by 100 so that on index start date it is worth 100. (position value1 + position value 2 ) / total investment amount * 100). An index value of 100 means your (basket, portfolio, industry) has broken even, neither losing or gaining. Values higher than 100 means it has made money. Values less than 100 means it has lost money. The following table shows the Equal Dollar Index using Ford and General Motors as the group. Date Ford Price GM Price Ford Shares GM Shares Ford Position GM Position Index Value 11/1/85 5.25 33.75 1904.761 296.2963 10,000 10,000 100 11/4/85 5.25 33.813 " " 10,000 10,018.7 100.093 : : : : : : : : 04/9/98 46.875 67.437 1904.7619 296.2963 89,285.7 19,981.5 546.336 The following table give some reasons to use Equal Dollar Weighted. If you used a "Price Value Weighted Index", Intel (INTC) would overshadow the contribution of the other two stocks. Similarly, a "Market Value Weighted Index" would favor Intel with 885,000,000 shares outstanding. An "Equal Dollar Weighted Index" is the only way to build an indicator allowing for equal contribution from each security in the group. Security Investment Price on Index Start Date (Base Price) Shares purchased on index start date Shares Outstanding (thousands) INTC 10,000 133.25 75.0469 885,000 AB 10,000 49.88 `2000.4812 16,341 GLM 10,000 21.50 465.1163 168,189 Using the Equal Dollar Weighted index, you can analyze the past performance of a group, or weigh the consequences of including or omitting various securities from the group. You could also use this approach to compare the performance of two or more groups of stocks by comparing their resulting indicators. --- In [email protected], Gilda Gross <[EMAIL PROTECTED]> wrote: > > > Gary, > Are the 190+ group indexes in Quotes Plus data base price- weighted, capitalization-weighted or equal dollar weighted? For instance, the Dow 30 is a price-weighted index while the S&P 500 is a cap-weighted index. > > __________________________________________________ > Do You Yahoo!? > Tired of spam? Yahoo! Mail has the best spam protection around > http://mail.yahoo.com > > [Non-text portions of this message have been removed] > __________________________________________________ Do You Yahoo!? Tired of spam? Yahoo! Mail has the best spam protection around http://mail.yahoo.com [Non-text portions of this message have been removed]
