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Pot Stocks Index: Explaining the different types of indexes

About the Pot Stocks Index

WS420 PotStocks Index is powered by a unique proprietary system, making it the most reliable indicator of the overall sector performance. Here’s what makes it unique compared to the other indexes.

  • 250 companies are included in our index compared to only ~45 for the other indexes tracking cannabis stock. WS420 PotStocks index is the only one that covers the entire sector including each cannabis company. The number of constituents in the other indexes is too low to be significantly representative of the entire sector performance.
  • Real equal-weighted index. Our index is automatically rebalanced every day to always maintain an equal weight for each company. We guarantee the performance you see equals the real equal-weighted performance of the sector, as opposed to the other indexes which rebalance quarterly.
  • Volume across all exchanges. We track the combined volume on the Canadian-side AND American-side. You can even customize the index to track the dollar volume if you prefer.
  • Adjusted to splits and shares consolidations. Our index will automatically adjust the index price history when a company changes its shares structure with a split or a consolidation. In the other indexes, a 10:1 reverse split would equal to a move of -90%.
  • Business sector change. If a mining shell that came public in 1990 moved their business to cannabis in 2017, then we will track this stock only starting from 2017 because the older price history is irrelevant.
  • Professional charts. We use the same technology used by TradingView to generate the charts
  • Capitalization-weighting and price-weighting. We are proud to be the first and only index to provide weighting by market cap or share price.
  • Price history accuracy. Most indexes use a third-party widget that tracks the entire price history of each stock. This is a huge problem for companies that came public through a reverse take-over instead of a traditional IPO. It would mean the other indexes also tracks the price history BEFORE the RTO.
    Pot Stocks Index: Explaining the different types of indexesHere’s an example with LHS: most indexes will track the entire price history because they don’t have the RTO date. In this example, LHS would have a huge influence on the index stock price in 2014-2015. But LHS only came public in July 2017, so the price history before this date is wrong and shouldn’t be included in the index.
    WS420 PotStocks Index automatically detects the reverse takeover dates and calculates the price history only AFTER the RTO date.

 

Equal-Weighted Index

Equal weight is a type of weighting that gives the same weight, or importance, to each stock in a portfolio or index fund, and the smallest companies are given equal weight to the largest companies in an equal-weight index fund or portfolio.

An equal-weighted index invests an equal amount of money in the stock of each company that makes up the index. Thus, the performance of each company’s stock carries equal importance in determining the total value of the index.

Using the S&P 500 Index as an example (capitalization-weighted), a majority of the index’s value is comprised of just the top ten companies that make up the index. One can easily see from this fact that weighting the index makes a huge difference in its calculated value, and that an equal-weighted index will differ substantially from a traditional capitalization-weighted index.

Examples of Equal-Weighted Index:

  • S&P 500 Equal Weight Index (EWI)
  • The Marijuana Index
  • New Cannabis Ventures Global Cannabis Stock Index

Learn more about Equal-Weighted Index (CFI)

 

Price-Weighted Index

A price-weighted index is a stock index in which each company included in the index makes up a fraction of the total index proportional to that company’s share stock price per share. In its simplest form, adding the price of each stock in the index and dividing by the total number of companies determines the index’s value. A stock with a higher price will be given more weight than a stock with a lower price and, therefore, will have a greater influence on the index’s performance.

In a price-weighted stock index, each company’s stock is weighted by its price per share, and the index is an average of the share prices of all the companies. A stock that increases from $110 to $120 will have a greater effect on the index than a stock that increases from $10 to $20, even though the percentage move is greater than that of the higher-priced stock. Higher-priced stocks exert a greater influence on the index’s, or the basket’s, overall direction.

Price-weighted indexes give greater weight to stocks with higher prices in terms of their contribution to the index value and changes in the index. A price-weighted index can be used to track the average stock price of a given market or industry.

Examples of Capitalization-Weighted Index:

  • Dow Jones Industrial Average (DIJA)
  • Nikkei 225 (NI225)

Learn more about Price-Weighted Indexes (Investopedia)

 

Capitalization-Weighted Index

A capitalization-weighted index is a type of market index with individual components weighted according to their total market capitalization. An index fund weighted by market capitalization invests more in certain companies than others. Regardless of the overall scale of companies that an index represents, the index is stacked heavily in favor of the largest companies in the index.

The calculation multiples outstanding shares by the current price of a single share. The components with a higher market cap carry a higher weighting percentage in the index. Conversely, the components with smaller market caps have lower weightings in the index. A capitalization-weighted index is also known as a market value-weighted index.

As a result, in the makeup or composition of a cap-weighted index, large movements in share value for the largest index companies can significantly impact the value of the overall index. However, since large companies with numerous outstanding shares tend to be more stable revenue producers, they can provide steady growth for the index. On the other hand, small companies tend to have a lower weighting, which can reduce risk if the companies don’t perform well.

Critics of the cap-weighted indices might argue that the overweighting toward the larger companies give a distorted view of the market. Companies with larger weightings can have a disproportionate impact on the fund’s performance. However, the largest companies also have the largest shareholder bases, which makes a case for having a higher weighting in the index.

Examples of Capitalization-Weighted Indexes:

  • S&P 500 Index (SPY)
  • Nasdaq Composite Index (IXIC)

Learn more about Capitalization-Weighted Index (Investopedia)

 

Pot Stocks Index: Explaining the different types of indexes