Direct Answer
The RS-Ratio axis of a Relative Rotation Graph, introduced by Julius de Kempenaer. It measures the trend of an asset's relative strength against a benchmark, centred on 100, so values above 100 show relative outperformance. Above 100 means the asset is outperforming the benchmark in trend terms and below 100 that it is underperforming.
Relative Rotation Ratio: Formula, Meaning, Signals, Examples and How to Use It
How Is Relative Rotation Ratio Calculated?
The RS-Ratio axis of a Relative Rotation Graph, introduced by Julius de Kempenaer. It measures the trend of an asset's relative strength against a benchmark, centred on 100, so values above 100 show relative outperformance.
Formula: Simplified form: RS-Ratio = 100 x (asset / benchmark) / moving average of (asset / benchmark); the JdK normalisation differs between software
Inputs:
- Asset price series
- Benchmark price series
- Moving-average length used for normalising
Worked example. If the asset-to-benchmark ratio is 0.0342 and its moving average is 0.0335, the simplified RS-Ratio is 102.09. The inputs are illustrative numbers, not market data.
Reading it. Above 100 means the asset is outperforming the benchmark in trend terms and below 100 that it is underperforming. Together with RS-Momentum it places an asset in one of four quadrants: leading, weakening, lagging or improving.
Limits. The actual JdK RS-Ratio uses a specific smoothing and normalisation, so the simplified formula only captures the idea. The picture depends on the benchmark, the universe and the time window.
What is Relative Rotation Ratio?
The RS-Ratio axis of a Relative Rotation Graph, introduced by Julius de Kempenaer. It measures the trend of an asset's relative strength against a benchmark, centred on 100, so values above 100 show relative outperformance.
How to use Relative Rotation Ratio
Above 100 means the asset is outperforming the benchmark in trend terms and below 100 that it is underperforming. Together with RS-Momentum it places an asset in one of four quadrants: leading, weakening, lagging or improving. A reading alone is never a buy or sell signal; it needs context from price structure, volume, volatility and the broader market regime.
Strengths
- Normalizing around 100 puts many assets on a shared axis, which lets one chart compare a whole set of sectors at once.
- Smoothing the asset-to-benchmark ratio dampens daily noise so the horizontal position reflects a trend rather than a single day's move.
- Reproducible when the formula and data convention are fixed.
Weaknesses and limitations
- The result is smoothed, so it responds to a change in relative trend only after a delay of several periods.
- A steady slope in the ratio keeps the value above or below 100 for long stretches, so extreme readings add little distinguishing detail.
- Correlated indicators can create false confidence by repeating the same underlying information.
Editorial and risk note
This page is educational content, not individualized investment advice. It should not imply guaranteed prediction, accuracy or outperformance.
Frequently Asked Questions
Is Relative Rotation Ratio a buy or sell signal?
No. Above 100 means the asset is outperforming the benchmark in trend terms and below 100 that it is underperforming. The actual JdK RS-Ratio uses a specific smoothing and normalisation, so the simplified formula only captures the idea. A trade built on it still needs a trigger, an invalidation rule, a position size and realistic execution assumptions.
What is the best setting for Relative Rotation Ratio?
Relative Rotation Ratio takes these inputs: asset price series; benchmark price series; moving-average length used for normalising. There is no universal best setting for the tunable ones, so test them across instruments, regimes and out-of-sample periods and favor stable parameter regions over one historical winner.
Can Relative Rotation Ratio be used by itself?
The actual JdK RS-Ratio uses a specific smoothing and normalisation, so the simplified formula only captures the idea. The picture depends on the benchmark, the universe and the time window. For that reason it is read next to measures of direction, participation, valuation, liquidity and risk, not alone.
Does Relative Rotation Ratio work on every timeframe?
The calculation (Simplified form: RS-Ratio = 100 x (asset / benchmark) / moving average of (asset / benchmark); the JdK normalisation differs between software) can be run on any bar size, but behavior is not portable: a reading on a five-minute chart describes a very different market window from the same reading on a daily chart. Validate the exact timeframe before relying on it.
Why does Relative Rotation Ratio give false signals?
The result is smoothed, so it responds to a change in relative trend only after a delay of several periods. A steady slope in the ratio keeps the value above or below 100 for long stretches, so extreme readings add little distinguishing detail. Lag, noise and regime changes add to this, because market participants react to new information after the reading is calculated.
How should Relative Rotation Ratio be backtested?
Rebuild Relative Rotation Ratio from asset price series using point-in-time data, write the rules before testing, include delisted securities where relevant, model realistic fills and costs, reserve a validation sample and compare with a simpler baseline.