Index Weighting
Not all stocks in an index count equally. The weighting method determines whether a company's market cap, its share price, or simply its membership drives its contribution to the index number. This is why two indexes tracking the same market — say, large U.S. companies — can produce noticeably different returns on the same day. Understanding weighting is essential for reading any stock index correctly.
The three most common methods are compared below.
| Weighting Method | What drives each stock's share | Common example type | Key quirk |
|---|---|---|---|
| Market-cap weighted | Total market value of the company | Most major global indexes | Largest companies dominate; index rises with them |
| Price weighted | Raw share price in currency | Some long-established indexes | A high-priced stock matters more regardless of company size |
| Equal weighted | Each stock gets the same share | Alternatively constructed indexes | Small companies get same pull as large ones; requires frequent rebalancing |
In a price-weighted index, a stock trading at a hypothetical $300 per share has three times the influence of one trading at $100 — even if the cheaper company is actually larger. In a market-cap-weighted index, a company worth $2 trillion naturally outweighs one worth $20 billion. In an equal-weighted index, both get exactly the same slice, so smaller companies have outsized impact compared to their real-world size.
Weighting also explains concentration risk: when a handful of very large companies dominate a cap-weighted index, the index's moves increasingly reflect those few names. Economists and analysts watch concentration levels as one measure of how broadly a market rally or selloff is distributed. For context on how these indexes feed into tradable products, see our financial markets guide and the live data on the shares pages.