The Dow, made up of 30 stocks, is a price-weighted average, meaning that higher-priced stocks cause the index to move more than a lower-priced one.
a 10-for-1 stock split which will bring its share price from over $1,000 to a more affordable level for retail investors and company insiders alike. Nvidia joins a number of companies that have recently announced sizable stock splits, including, the 128-year-old blue chip index where share price is a big factor in which companies can be added and how much they move the index once they are in.
Here's the thing: In a price-weighted average, an expensive stock has more influence than a cheap stock, because it's the dollar value that really matters. A $1 move for a $100 stock has the same effect as a $1 move in a $10 stock, despite it being a 1% move for the more expensive stock and a 10% move for the smaller-priced stock., with a stock price of $508.17 at Friday's close, equals just a 0.19% move in its stock. The same $1 change inequals a far bigger 3.3% move in the stock.
Post-split, NVDA would be the ninth biggest influence on the index, according to CNBC estimates of its expected daily volatility. That roughly $3 move puts it in line with, the most recent addition to the Dow. We took the past year's worth of daily returns to calculate the expected daily moves.contributing much to the Dow's daily move because, between their small share price and low volatility, they're only expected to contribute $1 combined.
Think about it like a dinner party where each guest's influence on the conversation is determined by how loudly they speak. Just as louder voices tend to dominate, so too do higher-priced stocks in a price-weighted index. You might have 30 guests all of whom have interesting perspectives, but 29 of them can be drowned out by the loudest talker in the room.. Fractional trading and exchange traded funds render the issues with high-priced shares mostly vestigial.
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