The sector index is generated using an index analysis method, where individual stocks within the same sector are weighted differently to create a relevant index. It represents the collective price changes of the sector's stocks and reflects the overall trend of the sector.

The calculation of the sector index is closely linked to stock prices, financial data, and ex-rights data. The quality of these data will affect the quality of the sector index.
The sector index is not a simple mechanical aggregation of the sector's stocks but a data-driven analysis method based on rational and scientific principles. Its calculation rules are as follows:

1. The total market capitalization calculated based on the closing price of the base date is used as the benchmark, equivalent to 1,000 points.

2. Market capitalization calculation method: where *n* is the total number of stocks, Px is the price of the *x*-th stock, and Wx is the weight of the *x*-th stock, which can be set as total shares outstanding, tradable shares, or 1 (equal weight).

3. Index = Current Market Capitalization / Base Date Market Capitalization * 1,000.

4. When a new stock is added, to avoid volatility, the new stock is included starting from the 4th trading day after its listing. Thereafter, the market capitalization is multiplied by the following coefficient: Original Market Capitalization on the Inclusion Date / Total Market Capitalization on the Inclusion Date.

5. Ex-rights adjustments are calculated as follows: Bonus shares do not affect the index; for rights offerings, Total Market Capitalization = Original Market Capitalization + Total Rights Offering Market Capitalization; for dividends, Total Market Capitalization = Original Market Capitalization - Total Dividend Amount.

6. Suspended stocks are calculated based on the previous trading day's closing price.

It must be noted that the definition method of the sector index determines its nature. The sector index is primarily defined by the weighting of the shares of the stocks in the sector, with three main types of definitions:

1. Total shares outstanding as the weight: Major indices are often defined this way. The larger the total shares outstanding, the greater the impact on the index. However, this method cannot accurately reflect the true market conditions because state-owned shares and legal person shares are not tradable.

2. Tradable shares as the weight: Tradable shares are the stocks actually participating in market operations, making them more meaningful than total shares outstanding.

3. Equal weight: Ignores the share structure of the sector's stocks and treats each stock's impact on the index equally.

Scientifically selecting the definition method of the sector index is crucial for its accurate application. When using the sector index, it should be noted that its calculation is closely tied to stock prices, financial data, and ex-rights data, and the quality of these data will affect the quality of the index.

The flexible and scientific definition method of the sector index can effectively address current shortcomings while allowing for the creation of customized indices that reflect investors' unique styles.

The sector index is a new technical analysis tool with significant and profound implications for stock market analysis. It successfully quantifies the concept of a sector and applies it in index form to sector联动 (sector linkage), modeling and refining the rich technical内涵 (connotations) of sectors. Comparative analysis of sector indices can effectively研判 (evaluate) the strength and weakness of sectors, providing important decision-making references for investments.

Because the sector index reflects the overall data of the sector, it possesses high authenticity. As a comprehensive reflection of the entire sector, it is less susceptible to manipulation by market makers during analysis, offering high reliability and safety.