Stock market indices have different forms of calculation. These are the two most common:
Adjusted market capitalisation (or cap-weighted) is used to track a number of companies based on the adjusted market capitalisation of the constituent stocks. Large-cap companies have a greater impact on the index’s price than small-cap companies. S&P 500 is an example of an index that is calculated this way.
Price-weighted average – adds up the stock prices of all constituents, and then divides that figure by the total number of stocks in the index. Dow Jones is an example of an index that is calculated this way.