Stock Price Charts

What are the differences between stock and stock index; differences in their behaviour?

Public Comments

1. stocks tend to be more volatile than stock indices (plural of index). Stock indices are made up of many stocks...the Dow Jones is a group of 30 stocks, the S&P 500 is 500 stocks, the Russel 2000 is 2000 stocks. Volatility is less in an index because it is a group of stocks...IE, in a hypothetical example, lets say you have an index of 2 stocks...one goes up 10%, one stock goes down 10%. At the end of the day, the index itself is little changed (low volatility). But, the stocks themselves have changed price quite a bit. Indices enable a person to buy a group of similar things all at once. "Similar" might be many definitions: Sized companies, country, product or service, etc. PS- there are bond indices also...and currency idices. I focused on stocks index differences because you mentioned stocks....
2. Having a stock gives you an ownership share of one particular company: General Electric, for example. The price of the share varies depending on how that company performs. A stock index is a way to measure the performance of lots of companies together. For example the S+P 500 index tracks five hundred of the largest American companies and shows their total performance as a single number. You can buy an index mutual fund that owns shares in all the companies in a particlar index. Indexes are generally less risky than individual stocks because they depend on the results of many companies, not just one. If one company does bad, another one is doing better.
3. Individual stocks represent partial ownership in a specific company. The price of the stock is dependent on many factors, including its industry, cashflow potential, debt leverage, recent historial performance, and internal and external guidance on future performance. If you invest all your money in one company, you are betting on the success of that one company and its management team. It's the old "having all your eggs in one basket" idea. If you pick a winner, you can do very well. If not, well, you get the idea. A stock index is a calculation based on a market basket of company stocks chosen by the firm providing the index. For example, the S&P 500 index is a calculation based on 500 stocks chosen by Standard & Poor. If you invest in a stock index mutual fund, that fund will invest in the same market basket of stocks that is used to calculate the index. All that means is that your risk is reduced, because you are betting on 500 stocks (in the case of SPIDER funds) instead of one. It also means your potential to win is reduced, since some of the stocks will do well, and others not. I hope this was helpful.
4. The easiest way to compare stocks to an index is think of how a mutual fund works. While as a group the overal portfolio may not change drastically from day to day the individual stocks wothin the family does. So goes the stocks within an index just like a mutula fund porfolio.
5. Stock index is nothing but an average of stocks in it. Most of the times it is weighted average. Index will move up and down based on the individual stocks in it and based on the weight-age. If you want to know about gold stocks, visit http://www.uscommoditiestrader.com/
6. Stock is the share of a particular company. In other words if you own a share or Stock of a company, then you are deemed to be a part owner of that company. Stock indices is made up of certain pre picked stocks(by the stock exchange) which determines the overall movement of all the stocks. Each stock is given a certain weightage in the indice and the movement in the price of the stock determines the movement of the indices, to the extent of the weightage the particular stock holds in the indice. Hope this suffice.
7. Stock are standlone investment products(say microsoft equity) .Stock index comprises a group of stocks,say S&P 500. The stocks are price weightead and/or market capitilization weighted to arrive at a value for the index. A index stock has some relation with the movement of stock index. It is measured by beta. beta is just historical. On any day a particular stock can move with no relation to the index movement. Index can only give you the effective movement of the market as a whole.
8. A stock index in the average of all the stocks that make up the index. The S&P 500 simply combines the 500 individual stocks in the index. Some stock in the index may be less volatile, but most will be more volatile. Some will move opposite the index, while most will move with it.
9. For stocks, their behavior depend on the fundamentals and market sentiment. For stock indexes, you can tell by looking at the way a particular stock index is calculated. They depend on the behavior of the related stocks and the formula.