Glossary term
Return Dispersion
The cross-sectional spread of individual stock or sector returns inside an index over a given window. High dispersion means constituents are moving in very different directions and stock selection matters; low dispersion means most names move together and the index-level move dominates.
Definition & Measurement
Return dispersion measures how spread out individual constituent returns are around the group's average return over a chosen window, rather than measuring the group's average move itself. Two indices can post the same headline return — say, flat for the month — while one has every constituent flat and the other has half the names up sharply and half down sharply. The first is low-dispersion, the second high-dispersion, and the headline number alone cannot tell them apart.
Why It Matters
In a high-dispersion environment, the index-level return understates how much is actually happening underneath — individual stock or sector selection drives most of the outcome, and breadth readings can look misleadingly narrow or wide depending on which names are moving. In a low-dispersion environment, most names are responding to the same macro driver, and the index-level move is a reasonably faithful summary of what happened to any given constituent.
How Closelook Tracks It
Closelook runs a dedicated sector-ETF dispersion desk, computing cross-sectional spread across sector-representative ETFs to flag when dispersion is rising or falling — a read on whether the market's next move is likely to be a broad macro event or a stock-by-stock story, without forecasting which names will lead either way.