Hi,
this time I have a really special question about the effect of a stock change it has on the stock index of which the stock is a component.
Here is an example:
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- A stock is a component of the S&P 500 with a weight of 1.5%.
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- This stock is expected to decline 30% in two months.
Question: “What is the effect for the S&P 500 when the stock declines 30% and this stock has a weight of 1.5% in the S&P 500?”
Calculation:
Is my calculation correct when I calculate 1.5% of 30% as the effect on the S&P 500? In this example the effect would be a decline of 4.5% (1.5 % of 30%) in the S&P 500 when this stock declines 30% and has a weight of 1.5% in the S&P 500.
In the calculation above I have assumed that the decline of 30% would happen on one day. This is of course not realistic. The decline of 30% is expected to happen in around two months.
Because the decline is expected to happen in around two months, the effect on the S&P 500 would be in “parts”, distributed over a period of two months but when the decline of 30% is over the total effect on the S&P 500 would be a decline of 4.5% if all other stocks in the S&P 500 would be unchanged.
As already mentioned a really special question. I appreciate any comment.
Thanks,
Thomas