Weighted Average Market Capitalization (redirected from Weighted Average Market Capitalizations)

Weighted Average Market Capitalization

Describing an index in which the average price is weighted for market capitalization. For example, if an index consisting of 10 stocks is weighted for market capitalization, this means that the average price of the stocks will move more when the stocks with higher market capitalization move. Most indices use weighted averages so that "smaller" values do not affect the index inordinately. This helps correct for the fact that averages tend to be affected by extreme values. Most indices weight for market capitalization. A prominent example is the S&P 500. See also: Weighted average price.

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Weighted Average Market Capitalization

What Does Weighted Average Market Capitalization Mean?

A stock market index weighted by the market capitalization of each stock in the index; in such a weighting scheme, larger market cap companies carry greater weight than do smaller market cap companies that are in the index. Most indexes are constructed in this manner, with the best example being the S&P 500.

Investopedia explains Weighted Average Market Capitalization

As an example, if a company's market capitalization is $1 million and the market capitalization of all the stocks in the index is $100 million, the company is worth 1% of the index. The alternative to weighting by market cap is a price-weighted index such as the Dow Jones Industrial Average.

Related Terms:
• Benchmark
• Index
• Market Capitalization
• Price-Weighted Index
• Standard & Poor's 500 Index—S&P 500