What is 'Weighted Average'
Weighted average is an average in which each observation in the data set is assigned or multiplied by a weight before summing to a single average value. In this process, each quantity to be averaged is assigned a weight that determines the relative importance of each quantity. Weightings are the equivalent of having that many like items with the same value involved in the average.
BREAKING DOWN 'Weighted Average'
A weighted average is most often computed with respect to the frequency of the values in a data set. One can calculate a weighted average in different ways, however, certain values in a data set are given more importance for reasons other than frequency of occurrence.
Calculation of Weighted Average
Investors often compile a position in a stock over several years. Stock prices change daily, so it's tough to keep track of the cost basis on those shares accumulated over a period of years. If an investor wants to calculate a weighted average of the share price he or she paid for the shares, he or she must multiply the number of shares acquired at each price by that price, add those values and then divide the total value by the total number of shares.
For example, say an investor acquires 100 shares of a company in year one at $10 and 50 shares of the same company in year two at $40. To get the weighted average of the price paid, the investor multiplies 100 shares by $10 for year one, 50 shares by $40 for year two, and then adds the results to get a total value of $3,000. The investor divides the total amount paid for the shares, $3,000 in this case, by the number of shares acquired over both years, 150, to get the weighted average price paid of $20. This average is weighted with respect to the number of shares acquired at each price and not just the absolute price.
Examples of Weighted Average
Weighted average shows up in many areas of finance besides the purchase price of shares, including portfolio returns, inventory accounting and valuation. When a fund, which holds multiple securities, is up 10 percent on the year, that 10 percent represents a weighted average of returns for the fund with respect to the value of each position in the fund. For inventory accounting, the weighted average value of inventory accounts for fluctuations in commodity prices, for example, while LIFO or FIFO methods give more importance to time than value. When evaluating companies to discern whether their shares are correctly priced, investors use the weighted average cost of capital to discount a company's cash flows. WACC is weighted based on the market value of debt and equity in a company's capital structure.

Portfolio Weight
Portfolio weight is the percentage composition of a particular ... 
Weighted Average Credit Rating
The weighted average credit rating is the weighted average rating ... 
Equal Weight
Equal weight is a type of classification that gives the same ... 
Purchase Price
The price that an investor pays for a security. This price is ... 
EURO STOXX Sustainability Index
The EURO STOXX Sustainability Index measures the financial performance ... 
NASDAQ100 Equal Weighted Index
The NASDAQ100 Equal Weighted Index is an equalweighted version ...

Trading
Weighted Moving Averages: The Basics
We take a closer look at the linearly weighted moving average and the exponentially smoothed moving average. 
Investing
Choosing The Right ETF Index To Reach Your Goals
The key to choosing ETFs for your portfolio is understanding how they pick stocks and making sure their investment philosophy matches yours. 
Investing
IWF: iShares Russell 1000 Growth ETF
Learn about the iShares Russell 1000 Growth ETF, including how the fund is constructed, its holdings and its strong recent performance. 
Investing
Time to Sell Weight Watchers After 103% YeartoDate Gain?
Shares of Weight Watchers surged as a successful turnaround gained momentum. Is there more room to run? 
Investing
Are FAANG Companies Overweighted in the MSCI World Index?
FAANG stocks are taking up larger and larger portions of the global equity market. 
Investing
Best Vanguard Funds Suitable for a Dividend Strategy
Learn about options from Vanguard for dividend investing strategies. Learn about the risks of investing in funds focused on dividends. 
Investing
Weight Watchers Stock Gains on Oprah's Weight Loss
Since Oprah Winfrey bought 10% of Weight Watchers (NYSE: WTW) and joined its board in October 2015, the company's stock has been on a yoyo diet. Shares rose on the initial announcement, then ... 
Investing
An Introduction To Sector ETFs
Find out how sector ETFs can give your portfolio the punch it needs. 
Investing
Billionaire Oprah Makes Bank On Weight Watchers Windfall
Oprah Winfrey held 10 percent of Weight Watchers shares, but is now taking advantage of the soaring stock prices.

What's the difference between moving average, weighted moving average and exponential ...
Moving averages are one of the most popular tools used by active traders to measure momentum. We'll take a look at three ... 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 value ... Read Answer >> 
What does the S&P 500 index measure and how is it calculated?
Learn about what exactly the S&P measures and why it's used by market participants as a tool to understand the broader stock ... Read Answer >>