Capitalization Method

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Definition: Capitalization Method

A portfolio building method wherein a manager tries to build a replica of the market portfolio by going long (by purchasing) the highly capitalized securities in the stock index in approximately the same proportion as each of the security’s respective market capitalization.

Example, if the index consists of 5 stocks say A,B,C,D,E with 10%, 15%,15%,40%,20% capitalization of each respectively, the manager will also try to construct a portfolio with each of these 5 securities in similar proportions.

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