In the case of the ASX 200, the index is designed to track the performance of the 200 largest publicly traded companies listed on the Australian Securities Exchange (ASX). These companies are ranked by market capitalisation, with the largest companies given the highest weightings in the index.
The index weighting of a particular company reflects the relative size of that company’s market capitalisation compared to the total market capitalisation of all the companies in the index. For example, if a company has a market capitalisation that is 10% of the total market capitalisation of all the companies in the index, that company would have a weighting of 10% in the index.
The weightings of the companies in the index are periodically reviewed and may be adjusted to ensure that the index accurately reflects the performance of the overall market. This is typically done by adding or removing companies from the index, or by adjusting the weightings of the companies that are already included in the index.