Price-Weighted Index
A stock index in which each stock influences the index in proportion to its price per share. The value of the index is generated by adding the prices of each of the stocks in the index and dividing them by the total number of stocks. Stocks with a higher price will be given more weight and, therefore, will have a greater influence over the performance of the index.
Investopedia Says:
For example, assume that an index contains only two stocks, one priced at $1 and one priced at $10. The $10 stock is weighted nine times higher than the $1 stock. Overall, this means that this index is composed of 90% of the $10 stocks and 10% of $1 stock.
In this case, a change in the value of the $1 stock will not affect the index's value by a large amount, because it makes up such a small percentage of the index.
A popular price-weighted stock market index is the Dow Jones Industrial Average. It includes a price-weighted average of 30 actively traded blue chip stocks.
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Index in which component stocks are weighted by their price. Higher-priced stocks therefore have a greater percentage impact on the index than lower-priced stocks. In recent years, the trend of using price-weighted indexes has given way to the use of Market-Value Weighted Indexes. The Dow Jones Industrial Average remains the most prominent example of a Price-Weighted Index, although, strictly speaking, it is an average as distinguished from an index.
Unweighted Index
A simple arithmetic or geometric average used to calculate stock indexes. Equal weight is invested in each of the stocks in an index with equal dollar amounts invested in each underlying stock. Because the stocks are equally weighted, one stock's performance will not have a dramatic effect on the performance of the index as a whole. This differs from weighted indexes, where some stocks are given more weight than others, usually based on their market capitalizations.
Investopedia Says:
As an example of how to calculate an arithmetic average, suppose that there are three stocks in an index with returns of 10%, 11% and 15%. The arithmetic return would be calculated as follows:
(0.10+0.11+0.15)/3 = 0.1200 =12%
In other words, you add the returns of each of the stocks in the index and divide this figure by the total number of stocks in that index.
To calculated a geometric average, suppose again that there are three stocks in an index with returns of 10%, 11% and 15%. The geometric return would be calculated as follows:
[(1+0.1)*(1+0.11)*(1+0.15)]^(1/3) = 1.1198 = 11.98%
In this case, you multiply the returns and take the 'n'th (where 'n' equals the number of stocks in the index) root of the product. The geometric average will either be equal to or lower than the arithmetic average.
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