DEFINITION of 'Unweighted Index'
A simple arithmetic or geometric average used to calculate stock indexes. Equal weight is invested in each of the stocks in an index with equal dollar amounts invested in each underlying stock. Because the stocks are equally weighted, one stock's performance will not have a dramatic effect on the performance of the index as a whole. This differs from weighted indexes, where some stocks are given more weight than others, usually based on their market capitalizations.
BREAKING DOWN 'Unweighted Index'
As an example of how to calculate an arithmetic average, suppose that there are three stocks in an index with returns of 10%, 11% and 15%. The arithmetic return would be calculated as follows:
(0.10+0.11+0.15)/3 = 0.1200 =12%
In other words, you add the returns of each of the stocks in the index and divide this figure by the total number of stocks in that index.
To calculated a geometric average, suppose again that there are three stocks in an index with returns of 10%, 11% and 15%. The geometric return would be calculated as follows:
[(1+0.1)*(1+0.11)*(1+0.15)]^(1/3) = 1.1198 = 11.98%
In this case, you multiply the returns and take the 'n'th (where 'n' equals the number of stocks in the index) root of the product. The geometric average will either be equal to or lower than the arithmetic average.

Arithmetic Index
An index of securities that uses an arithmetic sum to determine ... 
Geometric Mean
The average of a set of products, the calculation of which is ... 
Weighted Average Market Capitalization
A stock market index weighted by the market capitalization of ... 
Equal Weight
A type of weighting that gives the same weight, or importance, ... 
Arithmetic Mean
A mathematical representation of the typical value of a series ... 
TimeWeighted Rate of Return
A measure of the compound rate of growth in a portfolio. Because ...

Investing Basics
Breaking Down The Geometric Mean
Understanding portfolio performance, whether for a selfmanaged, discretionary portfolio or a nondiscretionary portfolio, is vital to determining whether the portfolio strategy is working or ... 
Fundamental Analysis
The Most Accurate Way To Gauge Returns: The Compound Annual Growth Rate
The compound annual growth rate, or CAGR for short, represents one of the most accurate ways to calculate and determine returns for individual assets, investment portfolios and anything that ... 
Mutual Funds & ETFs
Index Investing: What Is An Index?
An index is a statistical measure of the changes in a portfolio of stocks representing a portion of the overall market. It would be too difficult to track every single security trading in the ... 
Mutual Funds & ETFs
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. 
Investing Basics
What is an Index?
An index is a statistical means of calculating a change in an economy or market. 
Fundamental Analysis
How To Calculate Your Investment Return
How much are your investments actually returning? Find out why the method of calculation matters. 
Mutual Funds & ETFs
Create Your Own U.S. Equity Portfolio
Find out how to structure your portfolio so you can maximize returns. 
Investing Basics
An Introduction To Stock Market Indexes
Investopedia explains the five most talked about indexes and what makes them all different. 
Investing Basics
Calculating Annualized Total Return
The annualized total return is the average return of an investment each year over a given time period. 
Mutual Funds & ETFs
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.

How can investors benefit by understanding geometric means?
Discover why investors should know the difference between geometric and arithmetic means, and why the geometric mean is more ... Read Answer >> 
How do you calculate the geometric mean to assess portfolio performance?
Learn how to calculate the geometric mean. Understand when the geometric mean should be used and how it differs from the ... Read Answer >> 
What is a geometric mean in statistics?
Learn what the geometric mean is in statistics and how it is used to calculate various growth rates and returns by financial ... Read Answer >> 
How is the value of the S&P 500 calculated?
The S&P 500 is a U.S. market index that gives investors an idea of the overall movement in the U.S. equity market. The ... Read Answer >> 
What is the difference between a simple moving average and an exponential moving ...
The only difference between these two types of moving average is the sensitivity each one shows to changes in the data used ... Read Answer >> 
What's the difference between moving average and weighted moving average?
Moving averages are one of the most popular tools used by active traders to measure momentum. In this FAQ, we'll take a look ... Read Answer >>