Reviewed by Sep 30, 2020| Updated on
Weighted is an explanation of the modifications made to a figure to display the weighted proportions of the components that contribute to the figure.
A weighted average considers the proportional relevance of every component rather than measuring every component equally. The Dow Jones Industrial Average (DJIA) is a weighted cost average which compares every asset on the basis of stock’s price comparative price to the amount of all the shares’ price. The Standard and Poor 500 Index and NASDAQ index are made based on the market capitalisation in which every company is estimated comparative to its value in the market.
The Dow and Jon and NASDAQ indices make use of the weighing in their estimation to more accurately approximate the effect that varying stock prices shall have on the total market, weighing can also be made use to help to evaluate current and past prices of individual instruments by technical analysis.
The Standard and Poor 500 index is the most common market index on which numerous passive investment options are operating. It can go on to become overweighed in some sectors such as information technology when the market capitalisation of these components evolves disproportionately as compared to the remaining sectors.
If investors are not so comfortable with the excessive weight towards a specific sector or theme, then making investments in index funds will make for an ideal choice.