Diffusion Index

In econometrics, a diffusion index (also known as a dynamic factor) is a series which measures the co-movement of many time series. It is used in macroeconomic models.

An example of a diffusion index in the market place is the General Business Conditions Index produced by the Philadelphia Fed Survey.

Diffusion indexes are also used in technical analysis and measure the percentage of advancing verses decline stocks in a sector, industry, index or market. You may have also seen these referred to as advance/decline diffusion indexes.