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Finance GlossaryWeighting
Weighting
Definition of Weighting
Weighting refers to the proportion of an asset or security within a portfolio or index. For example, in a market index where one stock has a 10% weighting, its price movement has a greater impact on the index’s overall performance compared to stocks with smaller weightings.
Related Terms
Abridged Prospectus
An abridged prospectus is a short version of a company prospectus. As per SEBI norms, a company looking to offer equity or debt to investors must file a prospectus.
This document contains crucial details that can help investors make investment decisions. But a regular prospectus is lengthy.
That’s why Section 2(1) of the Companies Act of 2013 came into effect. It directed companies to publish an abridged or shorter version of their prospectus.
This document contains crucial details that can help investors make investment decisions. But a regular prospectus is lengthy.
That’s why Section 2(1) of the Companies Act of 2013 came into effect. It directed companies to publish an abridged or shorter version of their prospectus.
Box Spread
A box spread is a trading strategy that involves buying a bull call spread and a matching bear put spread. The components of a box spread are designed as so:
- Bull call spread : two call options with a lower and upper strike price
- Bear put spread : buying and selling puts at different strike prices of the same underlying asset with the same expiration
Narrow Market
A narrow market describes a situation where only a few stocks or sectors influence market movement, while the majority of stocks have low trading volume. It has few active participants on either the buy or sell side of the market. This limited participation suggests that the market trend is not broadly supported across the entire market.
Common Stocks
A common stock is a type of share that gives the holder the right to a part of a company’s profits, voting on key policies and decisions. Common stockholders have an advantage over preferred stockholders because they can:
- Get higher returns
- A part of the assets left after a company is liquidated (in case of default)
IPO
An IPO or Initial Public Offering is the method in which a privately held company becomes a publicly listed company. Existing shareholders must approve the IPO plan before the company can go public. Once shareholders approve, the company will either hire an intermediary or go for a Direct Public Offering, the result of which will be the determination of a price for the new equity shares that will be listed in the primary market.
Capture Ratio
The capture ratio is used to measure the performance of an asset during market highs and lows by comparing it to a benchmark.
The result is expressed as a percentage and helps investors understand whether the asset manager was able to steer through volatility the right way. There are two types of capture ratios investors can turn to:
The result is expressed as a percentage and helps investors understand whether the asset manager was able to steer through volatility the right way. There are two types of capture ratios investors can turn to:
- Up market capture ratio
-
Down market capture ratio
Here’s how to calculate the up market capture ratio:
Returns during market highs / Benchmark returns * 100
Here’s how to calculate the down market capture ratio:
Returns during market lows / Benchmark returns * 100
Returns during market highs / Benchmark returns * 100
Here’s how to calculate the down market capture ratio:
Returns during market lows / Benchmark returns * 100
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