What Is a Diffusion Index?

A diffusion index is a technical analysis metric that counts the number of companies that have increased in price or are displaying positive momentum. It’s important for assessing the stock market’s overall strength, since many stocks advancing indicate a robust market, while few(er) stocks advancing indicate a weaker market. The diffusion index is generally measured from day to day in the stock market.
The number of Business Cycle Indicators (BCI) moving together is often referred to as a diffusion index. This is helpful in determining the economy’s strength. The word “diffusion index” is a broad phrase that may be used in various fields of statistics or finance to determine how many components of a group are going upward or downward.