What is Sector?
Sektor
In short
A group of companies in the same line of business: technology, healthcare, energy and so on.
A sector is a group of companies in the same or similar line of business. The most widely used classification for US stocks is GICS, which splits companies into 11 sectors, including technology, healthcare, financials, energy, utilities, consumer goods and others. Each sector is further broken into industries and sub-industries.
Why it matters
- Stocks in a sector move together. When oil falls, most energy companies fall with it; when interest rates change, banks and utilities react.
- Comparisons only make sense within a sector. P/E, margins and dividend levels vary widely between sectors.
- Diversification. Ten stocks all from one sector behave much like a single bet.
Sector rotation
Different sectors lead at different stages of the economic cycle: technology and consumer names in expansions, defensive sectors (utilities, consumer staples) in slowdowns. Sector ETFs make it easy to track a whole sector.
In halal screening the sector is the first filter as well: some activities (such as conventional interest-based banking) are excluded outright — details in our methodology.
Example
Illustrative: a $10,000 portfolio holds four tech stocks worth $7,000 (70%) and $3,000 in other sectors.
- Tech falls 15%: $7,000 × 15% = $1,050 loss → the whole portfolio is −10.5%.
- With a 30% tech weight ($3,000): $3,000 × 15% = $450 → portfolio −4.5%.
The number of stocks can be the same, but sector concentration more than doubles the risk.
Mistakes and tips
Calculate each sector's weight in your portfolio — concentration is often higher than you think.
When valuing a stock, compare it with its own sector, not the market average.
A single stock's 'strength' often doesn't last when its whole sector is falling — check the sector trend too.
Frequently asked questions
- How many sectors are there in the US stock market?
- The widely used GICS classification has 11 sectors. Other providers may use slightly different schemes.
- Is investing in one sector risky?
- Yes, risk is higher: sector-specific bad news hits every position at once. That's why many investors spread across several sectors.
Try the theory without risk
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