investing
Market Capitalisation
Market capitalisation (market cap) is the total market value of a company's outstanding shares. It is calculated as share price × total shares outstanding. Market cap determines a company's weight in most stock indices.
Categories: large-cap (>$10B) companies are typically stable, profitable businesses. Mid-cap ($2B–$10B) offer a balance of growth and stability. Small-cap (<$2B) carry more risk but historically offer higher returns over long periods.
In an S&P 500 index fund, each company is weighted by market cap. This means Apple, Microsoft, and Nvidia account for a disproportionately large share of the index. Equal-weighted alternatives reduce this concentration.
Related terms
- Index Fund
- An index fund is a portfolio of stocks or bonds designed to replicate the performance of a market index, such as the S&P 500. Index funds have lower fees than actively managed funds because no stock-picking is required.
- Diversification
- Diversification is the practice of spreading investments across different assets, sectors, or geographies to reduce risk. A diversified portfolio is less volatile than any single holding because losses in one area are offset by gains in others.
- Rate of Return
- A rate of return (RoR) is the net gain or loss of an investment over a specified period, expressed as a percentage of the initial investment.
Frequently asked questions
What is Market Capitalisation?
Market capitalisation (market cap) is the total market value of a company's outstanding shares. It is calculated as share price × total shares outstanding. Market cap determines a company's weight in most stock indices.