Short for Deutsche Actienindex, DAX captures the pulse of the German economy (or rather, a hint of its pulse) through the 30 blue chip stocks it tracks at the Frankfurt Stock Exchange.
While this sample size is indeed too small to provide an accurate depiction of the entire German economy (by far the biggest of the Eurozone), it does offer traders exposure to the performance of the largest German companies.
DAX is more or less in the same league as the Dow Jones Industrial Average and FT30.
It is updated every second and it uses stock prices from the Xetra trading venue. When Xetra closes, L-DAX takes over, based on prices resulting from Borse Frankfurt floor trading.
The technology making such real time tracking possible became available in 2006. DAX has been updated with this spectacular frequency since January 1, 2006. The all-electronic system currently boasts an adoption rate of 95% among the stocks of DAX companies.
The base rate of 1,000 for DAX was set in December 1987. Since then, the index has climbed quite a bit. These days, it is trading around the 12.1k mark.
The index set its absolute intraday and closing records on January 23, 2018, when it hit the 13,596.89 and 13,559.60 marks respectively.
In regards to DAX, it needs to be pointed out that there are two versions of the index, and the most often quoted one is actually the one that measures total performance.
The price index is however the format that most other popular indices use.
A quick glance at the DAX constituents will make it clear immediately why it’s such a great measure of the cream of the crop of the German economy.
Allianz, BASF and the Adidas Group lead the way, followed by the likes of BMW, Daimler and Deutsche Bank. Henkel, Siemens and the Volkswagen Group are also included in the 30.
The weighting method used by the index is capitalization-based. This is indeed as simple as it gets: DAX considers the total market value of the outstanding shares of the constituents. Average trading volumes are also factored into the equation.
DAX’s owner is Deutsche Borse. Its official site is dax-indices.com.
Besides DAX, Deutsche Borse offers a selection of more than 400 indices, created to suit the needs of as wide a range of investors as possible.
Deutsche Borse updates and reviews the pool of DAX constituents regularly. Companies can indeed be dropped from the index, and new ones can be included. A company that no longer ranks in the top 45 is likely to be excluded. Likewise, one that breaks into the top 25 is liable to gain inclusion.