The methods of calculating the various weighting schemes is best explained by example:

Example: Price Weighted Series
Given the following series data, calculate the price weighted return over a one-year period.

Stock Price Info for Series 1

Answer:
To calculate the return over a one-year period, first calculate the price weighted series value at each date.

Price weighted index12/31/2003 = (15 + 25 + 40 + 80) = 40
                                                           4
Price weighted index12/31/2004 = (10 + 30 + 40 + 100) = 45
                                                           4

The one-year return for the price weighted series would thus be (45/40)-1 = 12.5%

Example: Market Weighted Series
Given the following series data, calculate the market weighted return over the one-year period.

Stock Price Info for Series 2

Answer:
Market weighted return = 390,000 x 100 = 109.59
                                     355,000

The 1-year return for the market weighted series would thus be (109.59/100)-1 = 9.59%.

Example: Unweighted Series
Given the following series data, calculate the unweighted return over a one-year period.

Stock Price Info for Series 3

Answer:
Geometric Average = (1.05 * 1.25 * 1.00 * 1.30)1/4 = 1.143


Domestic vs. Global Indexes

Related Articles
  1. ETFs & Mutual Funds

    S&P 500 ETFs: Market Weight Vs. Equal Weight

    Both indexes include the same stocks, but their weightings give them very different properties.
  2. Investing

    Using Historical Volatility To Gauge Future Risk

    Use these calculations to uncover the risk involved in your investments.
  3. Professionals

    The Difference Between Series 63, 65 and 66

    After passing the first core examination, usually the FINRA Series 6 or Series 7, one hurdle remains. That’s the Series 63, 65 or 66.
  4. ETFs & Mutual Funds

    3 Types Of Indexing For ETF Success

    ETF success relies on the index with which it's paired. Discover three index genres for tracking average market performance.
  5. Investing

    Exploring The Exponentially Weighted Moving Average

    Learn how to calculate a metric that improves on simple variance.
  6. Investing

    The Series 79 Exam: What It Is And When You Need It

    If you're getting into the field of investment banking, you'll need to know all about the Series 79.
  7. Managing Wealth

    How to Calculate Required Rate of Return

    Investors use the required rate of return to decide where to put their money, and corporations use it to decide if they should pursue a new project.
  8. Markets

    Series 24 Exam Prep: Stock Exchanges

    Before you take the series 24, you need to understand exchanges, listing requirements and much more.
  9. Trading

    Weighted Moving Averages: The Basics

    We take a closer look at the linearly weighted moving average and the exponentially smoothed moving average.
  10. ETFs & Mutual Funds

    Strategies For Determining The Market's True Worth

    Learn the strengths and weaknesses of passive and active management when trying to uncover the overall market's worth.
Trading Center