I'm looking to create a custom index. Basically a sector index of stocks that I choose.
What would be the best or most accurate way to do that type of index from the standpoint of component weighting?
No weighting: I could have each component in the index have equal value.
Market Cap weighting: The weighting of a stock would be as a percent of the market cap of that stock to the total of the market cap of all stocks in my custom index.
Volume traded weighting: The weighting of a stock would be as a percent of the avg number of shares traded on a daily basis of that stock to the total avg number of shares traded on a daily basis of all stocks in my custom index. This could be re-calced daily to give more weighting to stocks that pick up in activity.
Avg Value traded weighting: The weighting of a stock would be as a percent of the avg value traded (as calculated by avg daily shares * most recent closing price) on a daily basis of that stock to the total avg value traded on a daily basis of all stocks in my custom index. This could be re-calced daily to give more weighting to stocks that pick up in activity.
This is what I've thought of so far. Which of these sould most representative of an index? Or does someone have a better way for a custom index.
My calculations would be done in Excel or something similar.
Cash
What would be the best or most accurate way to do that type of index from the standpoint of component weighting?
No weighting: I could have each component in the index have equal value.
Market Cap weighting: The weighting of a stock would be as a percent of the market cap of that stock to the total of the market cap of all stocks in my custom index.
Volume traded weighting: The weighting of a stock would be as a percent of the avg number of shares traded on a daily basis of that stock to the total avg number of shares traded on a daily basis of all stocks in my custom index. This could be re-calced daily to give more weighting to stocks that pick up in activity.
Avg Value traded weighting: The weighting of a stock would be as a percent of the avg value traded (as calculated by avg daily shares * most recent closing price) on a daily basis of that stock to the total avg value traded on a daily basis of all stocks in my custom index. This could be re-calced daily to give more weighting to stocks that pick up in activity.
This is what I've thought of so far. Which of these sould most representative of an index? Or does someone have a better way for a custom index.
My calculations would be done in Excel or something similar.
Cash