NIFTY INDEX VS STOCK Relative Strength

Aug 28, 2020

Relative Index is a ratio of a stock price performance to a market average performance. It is used in technical analysis. It is not confused with RSI indicator. To calculate the relative strength of a particular stock,divide the percentage change over some period by the percentage change of a particular index over the same time period.A stock with a higher relative strength than the overall index often shows a strong investment opportunity.Relative strength is a technique used in momentum investing and identify value stock.The goal of relative strength investing is to buy high and sell even higher.

May 2, 2022

Release Notes

Relative strength analysis is simply dividing one market element by another. If this number is increasing, the one you divided it into is stronger; if this number is decreasing, the one you divided by is stronger. You can use this to compare a market sector to the economy in general, or you can pick a company and compare it to the sector’s performance.

In essence, it’s a stock that is showing strength relative to the market. Say the Nifty is down 1% on the day, yet Reliance is up 1%. That’s a stock showing relative strength – the ratio has gained 2% (1%+1%) .

On a one-day measure, relative strength isn’t all that convincing. But say the market is going through a really choppy period or is under a lot of selling pressure for a prolonged stretch. When a stock is standing tall during that period of time, then it’s really worth a closer look.

Don’t confuse a falling RS with a falling stock price. You can easily have a rising stock with a falling RS but it just means that the stock is climbing moderately less than its benchmark, lets say Nifty.

There are Four Scenarios When Using RS:

Price ↑ + RS ↓ = Stock climbs less than Nifty

Price ↑ + RS ↑ = Stock climbs more than Nifty

Price ↓ + RS ↑ = Stock drops less than Nifty

Price ↓ + RS ↓ = Stock drops more than Nifty

These calculations therefore present a great view of the “relative” momentum of the stock versus the market.

Relative strength plays are often a good place to “hang out” during market turbulence, but they usually outperform when the market comes back to life as well.