The weighted average market cap tells us that larger companies, in terms of market cap, may have a bigger influence on the average than smaller companies. This method provides a realistic picture of the market by emphasizing the impact of companies based on their size, ensuring that the valuation is not skewed by smaller entities. By reflecting the actual market dynamics more accurately, it provides investors with a more comprehensive view of the investment landscape, allowing them to make better-informed decisions that consider the proportional significance of larger companies.
However, it's important to note that this indicator should be used alongside others to obtain a proper assessment of the market. Combining it with other financial metrics and analyses will yield a well-rounded perspective, helping investors to evaluate potential risks and opportunities more effectively.