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Trading and Investment Terminology

Weighted average Cap

It refers to a stock market index in which larger companies (i.e. with higher market capitalization) have more influence on the index's performance.

 

An index of stocks in which companies that have a greater overall market capitalization are more strongly represented than companies with smaller market capitalizations.

A weighted market cap index is seen as being both stable, and reflective of the broader market, in which larger companies have a greater influence than smaller ones.

 

A weighted average is a powerful tool for an investor. It can be used to evaluate the performance of a portfolio.

 

For Example:

     Say you simultaneously invest different amounts of money in two companies: $10,000 in Company X and $5,000 in Company Y. After a year, Company X's shares have increased in value by 5% and Company Y's shares by 15%. 

The weighted average of your portfolio's performance would be the following:

Total initial investment = $15,000

5% growth on $10,000 = $10,500

15% growth on $5,000 = $5,750

Combined value after year 1= $16,250

($16,250- $15,000) / $15,000 = 8.33%

So the weighted average growth of the portfolio containing companies X and Y was 8.33%. 

 

 

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