What is Relative Strength?
Relative returns also referred to as 'Relative Strength' is a calculation of the price trend of a stock or a financial instrument in comparison to another instrument, stock, or industry. It shall be determined by taking the price of one commodity and dividing it by another. Relative strength is a strategy used for determining value stocks and is used in momentum investing as well. It involves investing in stocks that have done well, in relation to their index or benchmark.
To explain in simple terms, helps us identify instruments that are giving more returns relative to a benchmark or another instrument.
Framework used -
- Benchmark - Nifty500 Companies
- Collection - Listed Companies in India
- The time period for calculation - Quarterly
Using this framework, we can now analyze which companies in India are outperforming the Nifty500 index on a quarterly period. Further, I counted the number of stocks from each sector and compared it every weekend letting me know, which sector is picking up momentum and which is losing.
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