Complications with equal weighted index.

@karanv_10111 – you are right in the price weighted index example.

For equal weighted index, your calculation is correct if it assumes using arithmetic mean method. This should how much % return you’d get as if you invested $1 into each stock (though technically you can’t buy a fraction of a stock).

You can also calculate the return of an equal weighted index using geometric mean (if stated), which is [(1.3333*0.7153*1.25)^(1/3)]-1 = 6%

Yes @karanv_10111

@karanv_10111 – I forgot to add that:

Only the equal weighted index needs to be rebalanced periodically, because for price and value weighted ones, the price/value movement does the rebalancing automatically since it is reflected in the index value instantly. This is not the case for equal weighted index. So if you start out investing $1 in each 3 stocks above, after the price changes, your portfolio is no longer equally weighted as the $ amount you invest in each stock changes, hence the need to rebalance. I hope this makes sense.