Why are Index charts important?

<p id="isPasted"><strong>Indexing enables comparison of data of any magnitude</strong></p><p>For example, suppose an analyst wants to use a graph to compare the gross domestic product (GDP) of three different countries. Drawing such a chart with absolute values would be difficult because of the size disparity between countries. One country’s GDP might register in the trillions, another in the hundreds of billions and the other in the tens of billions. All these amounts wouldn’t fit well on the chart.</p><p>Take as another example, an analyst wants to determine whether the U.S. or Texas recovered lost jobs from the COVID-19 pandemic more quickly. Chart 1 shows how dissimilar magnitudes in employment levels in Texas and the United States make for difficult graphical interpretation. This chart demonstrates that the level of employment in the U.S. is substantially larger than employment in Texas, but because of this large disparity in magnitude, it's impossible to tell from this chart whether employment recovered in Texas faster or slower than the U.S.</p><p class="forexqa-img-container"><img alt="Chart 1" src="https://prod-forexqna.s3.amazonaws.com/uploads/froala_editor/images/1742276340844.png" style="box-sizing: border-box; max-width: 100%; height: auto; line-height: 1; width: 730px;" class="fr-fic fr-dii fr-draggable forexqa-img"></p><p>Indexing numerical data is useful in a variety of contexts. It shows up all the time in economic, financial and business analysis. Equity traders index stock prices and stock indices to compare performance over time. Economists index data to prominent events—say economic peaks (or troughs)—to see how the data decline (or rise) relative to each other. In all cases, it allows for quick comparison and ranking.</p>