4.1 Portfolio Weighting

Portfolio Weighting

Portfolio weighting is the process of determining what percentage of the total portfolio value $V$ that each asset should represent, such that each asset’s value is equal to $V_i=w_{i}V$. A portfolio of $n$ assets can be

• Equal-weighted: all assets have a uniform weight of $w_i=\frac{1}{n}$.
• Price-weighted: the $i$-th asset has a weight of $w_i=\frac{P_i}{{\sum }_{i=1}^n{P}_i}$ for a share price $P_i$.
• Value-weighted (cap-weighted): the $i$-th asset has a weight of $w_i=\frac{P_i\cdot S_i}{{\sum }_{i=1}^n{P}_i\cdot S_i}$ for a share price $P_i$ and $S_i$ total outstanding shares.

Examples

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