The Dow is measured in points, so you will read news about how it is up or down by so many points compared to the previous day. But how is it worked out?
The secret lies in what is called a divisor. Otherwise known in this case as the Dow Divisor, it is used to divide all the prices of the stocks in the index. They are all added together to provide a total and then divided by this divisor figure. One thing worth remembering is that this doesn’t work the same way as a normal average. In this case the sum is divided by the number of parts, which in this case would be thirty. But the divisor is a different figure because it has been arrived at due to a number of other circumstances.
So the Dow Divisor is really more of a mathematical equation now, and it can help you to figure out how many points the Dow has gone up or down in a day. All you need to know is the exact total price of all the stocks in the index.
The divisor can also help you work out whether a particular stock has altered by a specific number of points. This is useful if you have an investment in one or more of the companies in the Dow Jones Industrial Average, and you want to know by how many points it has increased or decreased. All you need to know is the amount by which the price has changed. So for example if there is a difference of two dollars, just use the divisor to divide that figure to come up with the points value.
As you can see the average changes every day. And the divisor can change too, so always make sure you have the latest information before you go into details on how to calculate any differences.
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