Thursday, March 19, 2015

Apple Became Part of the Dow Industrial Average Today; What It Will Mean for the Index

A $1 change in price in Apple’s stock will move the Dow by about 6.67 points.

The Dow is a price-weighted index, which means the price is determined by the price changes of its components, rather than percentage changes. Because Apple’s stock is nearly four times the price of AT&T’s stock,which it replaced, the divisor used to calculate the index has declined slightly, in an effort to make the change seamless to the outside observer.

The new divisor out to six digits is 0.149859, according to S&P Dow Jones Indices, which owns the Dow indexes. That means every $1 move in any component’s stock will move the Dow by about 6.67 points.

The previous divisor of 0.155716 meant that each $1 move was worth a 6.42-point change move in the Dow.

A 1% move in Apple’s stock--about $1.28 at Wednesday’s closing price--would move the Dow by about 8.54 points. That is nearly five-times the influence of a 1% move in General Electric’s stock % which equates to about 26 cents. General Electric is currently the lowest-priced Dow component, while Apple’s is the fifth-highest priced Dow component, behind Goldman Sachs Group, 3M Co.,  IBM Corp., and Boeing Co.

(via MarketWatch)

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