Comparative Relative Strength

Comparative Relative Strength is a ratio or calculation that allows you to monitor which of any two investments is performing better than the other on a relative basis. The user can compare a security against an index or any other publicly traded stock.

Our charting software allows you to complete the comparison using division or subtraction to create a ratio. If the value is trending higher, than the stock displayed in your chart is outperforming the second security chosen for comparison purposes. If the value is trending lower, than the stock displayed on your chart is underperforming the second security chosen for comparison purposes.

Comparative Relative Strength in Practice

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Comparative Relative strength can be useful for many purposes. A simple use is to measure the strength of a stock's current trend versus that of the general market. An alternative use is when comparing two potential investments and trying to determine overall which one has the strongest overall trend. Finally, you could use the comparison tool to help monitor the profitability of a pair trade.

The chart above shows stock A in a nice strong uptrend, the Comparative Relative Strength indicator compares the performance to a close competitor (stock B). While the stock remains in a nice uptrend, the indicator clearly shows that the performance has started to lag that of its competitor. In the case of a pair trade, if you were long stock A and short stock B, the ratio would directly correlate to the profitability of the trade.

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