The Russell Indices

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The Russell Indices

As you may have already noticed, the number of stocks sampled varies from index to index. Nevertheless, it is a generally accepted rule that the larger the sample, the more accurate the subsequent measure will prove to be. The Frank Russell Company utilizes this theory in compiling the Russell Indices, three indices that measure the movement of companies with varying levels of capitalization. The three are the Russell 3000, the Russell 2000, and the Russell 1000.

Plain English

The Russell Indices are three indices used to rate the activities of stocks based on their market capitalization. The smallest, the Russell 1000, measures the activities of the 1,000 largest capitalized companies, whereas the more famous Russell 2000 measures the remaining capitalized companies.


To create these indices, the Frank Russell Company compiles the stock prices of the largest 3,000 companies based on market capitalization ” the value of a company based on the market price of its total outstanding stock. Together, these form the Russell 3000. More widely used, however, are the other two: the Frank Russell 1000, which is composed of the biggest 1,000 of the initial 3,000; and the Frank Russell 2000, which is composed of the balance.

TIP

Market capitalization is determined by multiplying the market price of one share by the total number of outstanding shares. In this way, the value of all outstanding stock, or the market capitalization of the company, is discovered .


The Russell 2000, which is also known as the Russell 2000 Small Stock Index, is widely regarded as the best measure of the stock performance of smaller companies with capitalization ranging from $25 million to $275 million. This index is particularly important, because smaller companies are considered to react more quickly and therefore provide a better indication of pending market changes. This knowledge can enable an investor to spot trends faster and thus adjust his or her portfolio accordingly to best handle the looming circumstances.

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Stock Market Investing 10 Minute Guide
Stock Market Investing 10 Minute Guide
ISBN: 0028636104
EAN: 2147483647
Year: 2000
Pages: 130
Authors: Alex Saenz

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