It refers to a stock market index in which larger companies (i.e. with higher market capitalization) have more influence on the index's performance.
An index of stocks in which companies that have a greater overall market capitalization are more strongly represented than companies with smaller market capitalizations.
A weighted market cap index is seen as being both stable, and reflective of the broader market, in which larger companies have a greater influence than smaller ones.
A weighted average is a powerful tool for an investor. It can be used to evaluate the performance of a portfolio.
Say you simultaneously invest different amounts of money in two companies: $10,000 in Company X and $5,000 in Company Y. After a year, Company X's shares have increased in value by 5% and Company Y's shares by 15%.
The weighted average of your portfolio's performance would be the following:
Total initial investment = $15,000
5% growth on $10,000 = $10,500
15% growth on $5,000 = $5,750
Combined value after year 1= $16,250
($16,250- $15,000) / $15,000 = 8.33%
So the weighted average growth of the portfolio containing companies X and Y was 8.33%.