Weighted Average

Weighted Average, or weighted mean, is a mean resulting from the multiplication of each component with a predefined weight, reflecting its importance. Weighted average is usually prefered over simple average when the components of the data has different importance or when a frequency is attached to each of the component. Weighted averages are used extensively in descriptive analytical analysis. For example, in trading, to find average returns, more weights can be provided to the latest returns as compared to the returns received one year ago. It can be calculated by the formula:

where, W is the Weight of each value of the data

x is the value in the data

Example

Here we are assuming volume to be the weights of each component.

Weighted Average = Σ(Number of shares traded)* Price per share / Total number of shares traded        

  = [ (10*709.6) + (15*736.7)+ (25*673.7) + (30*688.55) + (5*591.95) +(15*630.35)] / 100

  =   680.6