Nikkei 225: formula for calculating the indicator
The Nikkei 225 Index reflects the state of processes on the Japanese Stock Exchange. Despite the fact that this sector is not popular with a wide range of investors, it demonstrates high volatility and stability of asset price changes.
The Nikkei 225 includes Japanese companies, whose total market capitalization accounts for 60% of the total Tokyo Stock Exchange index. The index represents the leading businesses in the Asian market that operate in more than 30 sectors. Fifty-seven companies in the Nikkei 225 Index operate in the technology segment and 59 in the mining industry. Accordingly, the indicator is influenced by the price of copper, which is a strategically important material for the Asian market. The Nikkei 225 primarily reflects the situation in the industrial sector in Japan.
The index is calculated by analogy with the American Dow Jones. The formula of the latter was taken for the Nikkei 225 in 1975 and looks like this: Nikkei 225 = Sum (adjusted price N) / d. In this case, adjusted price N stands for the value of the company’s shares after the correction on the basis of the lot. Accordingly, sum (adjusted price N) means the total value of prices for securities of all 225 companies of the index. Under d, or divisor, stands the coefficient, due to which changes in the number of outstanding shares are taken into account. The Nikkei 225 index is affected by fluctuations in the value of shares, while the capitalization of businesses is not taken into account. During the work of the exchange, the index values are updated every 5 seconds.
It should be noted that this indicator is considered one of the most diversified with respect to various market sectors. It includes representatives from 35 industries. Every autumn, the index is rebalanced, in the course of which companies with the worst indicators are replaced by more promising ones. Thus, overall, there is still room for growth for the Nikkei 225. In addition, the Japanese market is characterized by stability and highly organized business processes, which also positively affects the index’s performance.
The Nikkei 225 is optimally suited for impulse trading style, and the timing of the Tokyo Stock Exchange also speaks in its favor. The last one starts after the American session closes, which means that in the first hour, the Japanese exchange actively reacts to the market changes in the USA. As a consequence, the price chart of the index often has gaps, so you can use a counter-trend strategy. In addition, the Nikkei 225 is related to the Dow Jones indicator and the yen exchange rate, which makes it possible to use an arbitrage approach along with directional trading strategies.
