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Term used within the stock market From Wikipedia, the free encyclopedia
Within the stock market, the term overweight can be used in two different contexts.[1]
Definition 1: If a particular stock is selling for $500 and the analyst feels that the stock is worth $600, the analyst would be declaring the stock to be overweight.
Definition 2: Suppose that Technology stocks make up 10% of the relevant stock index by market value. For example, the weight of the Technology sector in the index could be 10%.[citation needed]
Overweight — Suppose that an investor holds 15% of his/her investment in Technology stocks. The investor's stock portfolio is then 15% overweight in Technology stocks.
Suppose further that the investor is advised by his broker or financial adviser that technology stocks should be "overweight." The investor is being advised to hold more investments in Technology, as a percentage, than the weight of that asset in the index/market. In this example, the recommendation is to hold more than 10% of the value of Technology shares.[citation needed]
Underweight — In contrast to overweight holdings, if the broker advises that technology stocks should be "underweight," the recommendation to the investor is to hold less than 10% of the value of Technology shares.[citation needed]
Equal weight - The third possibility is that the broker advises that technology stocks should have "equal weight." In which case, the recommendation is to hold 10% of the value of Technology shares.[citation needed]
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