08. Price Weighting

Price Weighting

Price Weighting: Add up all the prices, and you’ll have an index value.
\sum_{1}^{n} price_i = some index number

For example, if we have three stocks in the index: the index would be: \frac{1}{3} \times price_1 + \frac{1}{3} \times price_2 + \frac{1}{3} \times price_3 = some index number.

Note in practice that we’ll rescale this number. You’ll see this later in the lesson.