What are sectors?

When you hear people talk of the stock markets, you'll often hear people mention one sector or another.

Sectors are a way of grouping different stocks together into something that they have in common. Usually this means into sets of stocks that operate in the same marketplace, or whose core business is along the same line.

So it is natural to lump banks together, to lump mining companies together and so on.

Also this means that you can compare how well a stock is doing within its sector to get an idea of how well it is really doing. This is important as trends and patterns are often sector specific so if an individual bank stock is down a little, say, but on average bank stocks are down a lot, then that bank could be doing well.

On the flip side, one that goes up a little when all the others zoom up would seem not to be doing too well, and not outperforming the sector, nevermind the market.

So a sector is simply a way of splitting stocks into different categories. There are some major and minor categories and some contain more stocks than others.

The sectors also depend on what the index is, as some indexes are sector specific for instance technology companies only and so forth.

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