How to Calculate a Weighted Average in Excel
A weighted average is a more descriptive way of calculating the average of a set of data points. This is because it assigns each value in the set a specific weight, or degree of importance.
The standard average method for calculating the mean involves multiplying each value in the set by its weight, and then summing those products. Once you’ve done that, you divide the sum of those weight*value products by the total of all the weights in the set to calculate the weighted average.
Excel has a built-in formula to calculate a weighted average. It’s called SUMPRODUCT, and it can be used in a wide variety of formulas. You can find the formula in the Functions Library in Excel’s Formulas tab.
To use the SUMPRODUCT formula, you need to add a column to your spreadsheet with the weights for each data point. Then, you can type the formula into your worksheet cell.
How to Calculate a Weighted Average in Excel
The most common place you’ll see weighted averages is in grade calculations. A student’s grades are often calculated by combining their test and assignment marks with the marks they get on final exams or midterms, giving each a different weighting. This method can make the overall assessment more accurate and easier to understand.
How to Calculate a weighted average in Excel
When calculating the weighted average, you must remember that some values have more importance than others. This is because they are considered to have a greater impact on the resulting average.
For example, if you have the number of stocks in your portfolio divided into a range, and some numbers in the range are worth more than others, you can use a weighted average to get a better estimate of their worth. You can also use a weighted average to help determine when it is best to buy or sell shares of a company, as in the construction of a portfolio weight.
This type of calculation is useful in finance, where the volume-weighted average price (VWAP) is used to compare stock prices and calculate portfolio weights. It’s also used to calculate the return on a portfolio, which is the average rate of profit generated from buying and selling stocks over time.
In sports statistics, batting averages can be compared using a weighted average, as a player’s home runs or no-hits may have more significance than their hits. It can also be used in charting, as the EMA method does not require you to keep track of all the values within a range of numbers.
How to Calculate a Weighted Average in Excel
The most basic way to calculate a weighted average is by multiplying each data point by its own weight. Then, you’ll sum the weighted average for all the values in your data set. Once you’ve done that, you can then divide the products of all the weighted averages by the sum of all the weights in your data set to calculate the weighted average.
