How Is the Dow Jones Calculated?
The Dow Jones Industrial Average tracks 30 stocks using a price-weighted calculation. Add the current share prices of its constituents, then divide that sum by the Dow divisor. The result is an index level, not a dollar price or a simple average of returns.
The divisor is adjusted when events such as stock splits or changes in the index’s components would otherwise create an artificial jump in the index. This helps preserve continuity across those changes. Because the index is price-weighted, a higher-priced stock has a larger weight than a lower-priced one, regardless of the companies’ relative market values.
For a given divisor, a $1 change in any one component’s share price moves the Dow by approximately 1 divided by the divisor in index points, assuming the other prices stay unchanged. Equal percentage moves are different: the higher-priced stock has a larger dollar move and therefore more influence.
By contrast, the S&P 500 is weighted by float-adjusted market capitalization, so larger companies generally have more influence. For a worked example, see this step-by-step Dow calculation.
