is unweighted or weighted better 
one type of index isn t necessarily better than another they are just showing different things the weighted index shows performance typically by market capitalization while the unweighted index reflects unweighted performance across the index s components one of the pitfalls of a weighted index is that returns will be based largely on the most heavily weighted components and the smaller component returns may be hidden or have little effect this could mean that most of the stocks in the s p 500 for example are actually declining even though the index is rising because the stocks with the most weight are rising while most of the stocks with little weight are falling the flip side of this argument is that smaller companies come and go and therefore they shouldn t be given as much weight as the large companies with a much larger shareholder base an unweighted or equal weight index reflects how a whole pool of stocks is doing it may be a better index for an investor who isn t investing in the most heavily weighted stocks of a weighted index or is more interested in whether most stocks are moving higher or lower the unweighted index does a better job of showing this than a weighted index in terms of performance sometimes an unweighted index outperforms the weighted index and other times the reverse is true when deciding which is a better index to track or mimic look at the performance and volatility of both to assess which is the better option real world example of weighted and unweightedthe nasdaq 100 index is one hundred of the largest companies listed on the nasdaq exchange it is a weighted index based on market capitalization although the index caps how much of a weight any individual stock can have 3the nasdaq 100 equal weight index has an equal weight of 1 assigned to each of the 100 components 4over time the weightings can have dramatic effects on returns the following chart shows the nasdaq 100 ewi as candles and the nasdaq 100 as a pink line between 2006 and 2019 the nasdaq 100 returned 70 more than its ewi counterpart showing that the larger cap stocks tended to bolster returns for the weighted index this may not always be the case depending on the index sometimes the unweighted version outperforms the weighted version image by sabrina jiang investopedia 2021along the bottom of the chart is a correlation coefficient showing that most of the time the two indexes are highly correlated near a value of one but on occasion the two indexes diverge or may not move in the same direction these are periods where how the index is weighted affects its performance relative to the other 