Sector Diffusion Index

Install and import#

npm install fintech-algorithms

import { calculate } from "fintech-algorithms/market-breadth-and-internals/concentration-and-diffusion/sector-diffusion-index";

Signature#

calculate(rows, tolerance)

The share of sectors improving rather than deteriorating. Diffusion asks how *broad* a move is across groups, which a capitalisation-weighted index cannot show — one sector can carry the whole level.

Parameters#

Returns#

{ status, value, improving, unchanged, deteriorating, total }

The diffusion value with the three counts behind it.

Errors#

• When tolerance is negative — throws

Complexity: time O(n), space O(1).

Worked example#

executed Captured by running this function on the input its own test provides. Real output of real code — but not asserted against a published figure.

Input#

[
  {
    "component_id": "Communication",
    "signal_change": 0.012,
    "ready": true
  },
  {
    "component_id": "Consumer Discretionary",
    "signal_change": 0.008,
    "ready": true
  },
  {
    "component_id": "Consumer Staples",
    "signal_change": 0.006,
    "ready": true
  }
]

Showing 3 of 11 elements.

0.002

Call#

calculate(rows, tolerance)

Returns#

object with 6 fields: status, value, improving, unchanged, deteriorating, total

{
  "status": "resolved",
  "value": 59.09090909090909,
  "improving": 5,
  "unchanged": 3,
  "deteriorating": 3,
  "total": 11
}

Diagrams#

Calculation flow#

flowchart LR
    A["Point-in-time component snapshot"] --> B{"Complete, unique, finite?"}
    B -->|"No"| X["Incomplete — withhold value"]
    B -->|"Yes"| C["Apply Sector Diffusion Index contract"]
    C --> D["Retain component audit trace"]
    D --> E["Publish value, unit, parameter, and as-of"]

How it works#

This page states the contract — how to call it correctly. The article explains the concept: why it works, and where it breaks.

Read the article →

References#

• Claim-to-source map
• How to Compute Diffusion Indexes — The Conference Board

The rest of the Concentration and Diffusion family#

• Top-N Index ContributionHow much of an index's move came from its largest N members.
• Herfindahl Constituent ConcentrationThe Herfindahl–Hirschman index of constituent weights: the sum of squared weights.
• Effective Number of ConstituentsThe reciprocal of HHI: how many equally weighted holdings would give the same concentration.
• Factor Diffusion IndexThe same diffusion measure across factors rather than sectors — momentum, size, volatility — showing whether a move is broad ac…