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NYSE Composite Index

Index that tracks stocks traded on the New York Stock Exchange

What is the NYSE Composite Index?

The NYSE Composite Index is an index that tracks stocks traded on the New York Stock Exchange. It also measures real estate investment trusts, American depository receipts, and foreign listings, and it excludes derivatives, ETFs, and closed-end funds.

 

 

NYSE Composite Index
Fig.1: NYSE Composite Index – Jan. 1985-Jun. 2020

 

Summary

  • The NYSE Composite Index is an index that tracks all stocks traded on the New York Stock Exchange.
  • The index lists over 2,000 stocks, which comprises US companies and foreign companies that are listed on the NYSE.
  • The NYSE Composite Index is calculated based on the total return and price return of stocks.

 

The index covers over 2,000 stocks, out of which 1,600 stocks are from U.S. companies while the other stocks are foreign listings.

As of market closing on December 31, 1965, the NYSE Composite Index was assigned a value of 50. It is weighted based on the number of shares listed per issue. In January 2003, the index was re-introduced with a value of 5,000 points.

Understanding the NYSE Composite

The NYSE Composite Index includes separate indices for four industry categories – industrial, utility, transportation, and financial corporations. The index weights are calculated based on the price return and total return, excluding dividend amounts.

Investors in the NYSE Composite Index benefit in two ways.

The high quality of the index makes it attractive to investors. Corporations listed on the index are required to meet stringent listing requirements, which separates potentially risky corporations from profitable corporations.

The global diversification of the NYSE Composite Index makes it attractive to investors who are looking to spread their portfolio across companies located in different geographical locations.

At least one-third of the market capitalization of the index is associated with non-U.S. companies from countries such as Japan, Mexico, Canada, China, and the United Kingdom. The foreign companies listed on the exchange operate in at least 38 different countries around the world.

 

How the NYSE Composite Index Works

The NYSE Composite Index was established in 1966, with a base of 50 points, which was equal to the December 1965 close. It was created to reflect the value of all stocks trading in the New York Stock Exchange, instead of a few best-performing stocks, as is the case with the Dow Jones Industrial Average, which lists the best 330 stocks.

In 2003, the index was reintroduced with a new methodology that is applied across other popular U.S. indexes. It raised the base value from 50 points to 5,000 points, which was equal to the 2002 yearly close.

Under the current methodology, the index excludes closed-end funds, trust units, limited partnerships, derivatives, and preferred shares.

 

Milestones for the NYSE Composite Index

 

NYSE Composite Index - Milestones

 

How Market Capitalization Works

The NYSE Composite Index uses market capitalization to calculate the weights of the index constituents. Market capitalization works by multiplying the outstanding number of shares that a company owns by the market price per share.

For example, a company with 20 million outstanding shares and a current market price of $100 per share shows a market capitalization of $2 billion. Investors use the figure to determine the value of a company instead of looking at the cumulative asset or annual sales figure.

Using market capitalization tends to be more convenient for investors when making investment decisions on the stocks to invest in and diversifying stock investments across multiple companies with varying market capitalization.

 

Categorization of Companies Based on Market Capitalization

Investors and analysts use market capitalization to categorize companies based on their size. For example, publicly-listed companies with a market capitalization of $10 billion or more are considered large-cap companies. Such companies are usually key players in their specific industries.

While large-cap companies do not provide huge returns in the short term, such companies are considered stable and reward investors with consistent dividend payments and a gradual increase in the share value.

Mid-companies are smaller in size than large-cap companies, and their market capitalization ranges from $2 billion to $10 billion. Such companies are considered riskier than large-cap since they are not as established as the latter.

Mid-cap companies offer high growth potential since they are domiciled in industries with rapid growth. Companies in the low-tier of market capitalization are small-cap companies with a market cap of $300 million to $2 billion.

Mic-caps are usually a few years old or are serving new industries. They are considered high-risk due to their young age, and size and they are more sensitive to economic turmoil.

 

Additional Resources

CFI is the official provider of the Certified Banking & Credit Analyst (CBCA)™ certification program, designed to transform anyone into a world-class financial analyst.

To keep learning and developing your knowledge of financial analysis, we highly recommend the additional resources below:

  • Capitalization-Weighted Index
  • NASDAQ Composite
  • Price-Weighted Index
  • Volume of Trade

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