What is a Composite?
A composite is a grouping of securities, indexes or other items.
How Does a Composite Work?
One of the most well-known composites in the finance world is the Dow Jones Composite Average, which is a price-weighted average of the 65 companies that compose the Dow Jones Industrial Average, the Dow Jones Transportation Average, and the Dow Jones Utility Average. The index is price-weighted, meaning that the stocks with the highest prices have the most influence on the index.
Why Does a Composite Matter?
Composites are broad measures and usually a convenient way to evaluate the performance of a wide array of securities, other indexes or other items. For instance, the Dow Jones Composite Index gives a good indication of the overall direction of the largest companies in the United States: It includes some of the titans of the transportation, utility, financial services, technology, retail, entertainment and consumer goods industries. As such, the index is not just a measure of market performance; some consider it an economic indicator as well.
