Industries can be further categorized into more specific groups. For example, the insurance industry can be broken up into different, specialized divisions like home, auto, life, malpractice, and corporate insurance.

Though all of the companies in the sector could be affected by similar factors, they have completely different purposes, capital expenditures, cash flows, operating margins, and so on.

When choosing an investment opportunity, an investor may find it more advantageous to compare different companies within the same industry. They'd be comparing apples-to-apples since the companies may share the same or similar production processes, customer type, financial reporting, or responsiveness to policy changes.

Grouping companies into specific categories that reflect their similarities allows for a more effective view and comparison of their functions, operating activities, and business results.

Moreover, the stocks of companies within the same industry will typically see price moves in the same direction for the same basic reason: they're affected by the same (or similar) factors, including market changes. So, for example, within the healthcare sector, the stocks in the healthcare provider and services industry may respond in the same way when decisions about the Affordable Care Act (ACA) are made in Washington, D.C.

A sector is a general segment of the economy that contains similar industries. An economy can be broken down into about a dozen sectors which can describe nearly all of the business activity in that economy. Economists can obtain an understanding of the economy by looking at each sector.

Manufacturing is a sector. It contains companies that mechanically, physically, or chemically change materials, substances, or components into different products.

Analysts and other financial writers might create confusion if they use the terms interchangeably, or if they reverse the meanings behind the two terms. But they can avoid such confusion by referring to a sector as a broad economic segment that contains industries while an industry falls within a sector and breaks down according to more specific companies and business activities.

When evaluating companies, it is more prudent to evaluate those within an industry than those throughout a sector. This is so because, as noted above, each sector has many different industries.

The U.S. government uses the North American Industry Classification System (NAICS) to classify industries. It does so to gather, analyze, and report a range of data about the U.S. economy.

The economy's basic materials sector includes companies that deal with the exploration, processing, and selling of basic materials such as gold, silver, or aluminum. These materials are then used by other sectors of the economy. This is a primary sector.

Examples of industries include banks, asset management companies, insurance companies, and brokerages. Companies that fall into the same industry offer similar products or services and compete for customers who require them. For instance, banks will compete with one another for customers who require checking and savings accounts. Asset management firms compete for investment clients.

Industry vs. sector. The two terms are often used interchangeably but they have distinct meanings that are important to investors, analysts, and the federal government.

For example, the transportation and warehousing sector includes a variety of industries relating to different types of transport, including air transportation. But if you wished to compare companies that build planes, such as Boeing and Airbus, it would be best to look at the aerospace industry within this sector, and not the sector as a whole.

The North American Industry Classification System (NAICS) facilitates the straightforward comparison of statistics of business activity across North America.

Investors can use sectors as a way to categorize the stocks in which they invest, such as telecommunications, transport, healthcare, and financials. Each sector comes with its own characteristics and risks.

Although some may think of them as the same, the terms "industry" and "sector" have different meanings. Industry refers to a specific group of similar types of companies, while sector describes a large segment of the economy. In the stock market, the generally accepted terminology cites a sector as a broad classification and an industry as a more narrow one.

An industry represents a group of similar business establishments. It is a subset of the larger sector. A sector groups industries, based on their commonalities and according to the sector type into which their business practices fit (primary, secondary, tertiary, or quaternary).

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Industry refers to a specific group of companies that operate in a similar business sphere and have similar business activities. Industries are created by breaking down sectors into more defined groupings. Therefore, an industry is a subcategory of a sector.

Therefore, when utilizing financial ratios to compare one company to the next, again, look at companies in the same industry. In other words, compare Boeing to Airbus as opposed to an airline catering service.

Transportation is another sector of the economy. This sector includes automobile manufacturing, train, trucking, and airline industries. It is a tertiary sector.