posted on 06-06-2019

Composite

Updated August 6, 2020

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.