How the Dow is calculated, with a three-stock example

What this video covers

The Dow’s price-weighted formula and the page’s three-stock example, animated: the same 10% gain moves the index 7.7% or 0.8% depending on the share price. Why a higher price means more influence.

Sources and the longer explanation: How Is the Dow Jones Industrial Average Calculated?.

Numbers shown on screen

• Stock A: 500
• Stock B: 100
• Stock C: 50
• +7.7%: $500 stock rises 10%
• +0.8%: $50 stock rises 10%

How the visuals were made

In 0:45 the video moves through 6 scenes, including a worked formula card (Sum of 30 share prices ÷ Dow divisor); a bar chart, “A three-stock price-weighted index = 650”; a checklist, “What the divisor does”. All graphics were rendered frame by frame by UXS; no stock footage, logos or faces are used.

Chapters

• 0:00 Dow Jones Industrial Average
• 0:06 A three-stock price-weighted index = 650
• 0:15 Same 10% move, different effect
• 0:26 Higher price, more influence
• 0:31 What the divisor does
• 0:40 Risk note

Transcript

The Dow adds up the share prices of its 30 companies and divides by a number called the Dow divisor.

Imagine three stocks at $500, $100 and $50, with a divisor of one. The index is 650.

If the $500 stock rises 10%, the index gains 7.7%. If the $50 stock rises 10%, it gains just 0.8%.

That is price weighting: a higher share price means more influence, not a bigger company.

The divisor is adjusted for splits, special payouts and replacements. It is now far below one, which is why the Dow sits in the tens of thousands.

Educational only, not financial advice.