Unweighted Price Index

With the 'composite' plugin in QS, we can easily create our own indices. The simplest construction gives a price-weighted index. One drawback of a price weighted index is that when a high priced stock ceases to be a member of the index, it results in a downward gap for that day and vice versa when a high priced stock becomes a new member.

These gaps are avoided by constructing an 'Unweighted Price Index' which is based on the percentage change.

As the Index starts with a base value, QS has advised me to use the 'geometric mean'. In order to create a smooth OHLC chart, QS has given a nice technique. This involves constructing the closing value of the index first and then creating the OHL based on the average percentage change of individual open/high/low from the close. As I wanted only quotes from Monday to Friday to be used, a filter is added whereby dayofweek should be less than 6.

Once downloaded, change the name of the composite to suit your objective. The object shared carries the name 'auto ancillaries' as it was used by me with the symbols from that sector. Hence, the symbol selection form, by default stays at the 'auto ancillary' sector. Please change the symbol selection form according to your requirement.

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