Direct Answer
Relative Rotation / Ratio-Momentum is a technique for visualizing how a group of assets is rotating in relative strength against a common benchmark, popularized as Relative Rotation Graphs (RRG) by Julius de Kempenaer. Instead of tracking one asset's price in isolation, it tracks two derived values for every asset in the group: how much the asset is outperforming or underperforming the benchmark (the relative strength ratio), and whether that outperformance or underperformance is accelerating or fading (the ratio's momentum).
Key Takeaways
- Relative Rotation Graphs (RRG) plot two components: a normalized relative strength ratio (asset price ÷ benchmark price) and the momentum of that ratio over a recent window.
- Plotting ratio against ratio-momentum sorts assets into four quadrants, commonly labeled leading, weakening, lagging, and improving.
- Assets are commonly observed rotating clockwise through the four quadrants over time, but this is an empirical pattern, not a guaranteed law.
- RRG measures performance relative to a chosen benchmark, not absolute price direction, an asset can plot in the "leading" quadrant while falling in price, if it's falling less than the benchmark.
- The technique was popularized as Relative Rotation Graphs by Julius de Kempenaer and is most often used to compare a group of related assets, such as sector ETFs, at once.
What Is Relative Rotation / Ratio-Momentum?
Relative Rotation / Ratio-Momentum is a technique for visualizing how a group of assets is rotating in relative strength against a common benchmark, popularized as Relative Rotation Graphs (RRG) by Julius de Kempenaer. Instead of tracking one asset's price in isolation, it tracks two derived values for every asset in the group: how much the asset is outperforming or underperforming the benchmark (the relative strength ratio), and whether that outperformance or underperformance is accelerating or fading (the ratio's momentum). Plotting the two against each other on a single chart lets a trader compare an entire group, such as the eleven S&P 500 sectors, or a basket of individual stocks, at a glance, rather than scrolling through each asset's chart one at a time.
The Formula
Relative Strength Ratio = Asset Price ÷ Benchmark Price, normalized so the ratio can be tracked and compared consistently over time.
Ratio Momentum = the rate of change of that ratio over a recent window, how quickly the relative strength ratio has moved over the last several periods.
The two values are then plotted against each other: the relative strength ratio on one axis, its momentum on the other. An asset with a ratio above the benchmark and positive momentum sits in a different part of the chart than one with a ratio above the benchmark but fading momentum, which is the entire point of plotting both together instead of just one. This is the same underlying idea as a MACD line and its signal line, applied to a relative-strength ratio instead of raw price.
Worked Example
Hypothetical example, for education only.
A stock, XYZ, trades at $150 while its benchmark index trades at $5,000. Raw ratio = 150 ÷ 5,000 = 0.0300.
Normalizing this ratio to an index that started at 100 on a chosen reference date, where the raw ratio was 0.0285 on that date, gives: (0.0300 ÷ 0.0285) × 100 ≈ 105.3. A normalized ratio above 100 means the stock has outperformed the benchmark since the reference date; below 100 means it has underperformed.
Ten trading days earlier, the normalized ratio stood at 101.9. Ratio momentum, measured as the rate of change over that window, is (105.3 ÷ 101.9 − 1) × 100 ≈ +3.3%.
With the ratio above 100 (outperforming the benchmark) and momentum positive (that outperformance accelerating), XYZ would plot in the leading quadrant of the RRG for this window.
How RRG Is Used: The Four Quadrants
Leading
Ratio above the benchmark, momentum positive, the asset is outperforming and that outperformance is still accelerating. Commonly read as the strongest relative position in the group, though not a guarantee it continues.
Weakening
Ratio above the benchmark, momentum turning negative, the asset is still outperforming, but the pace of outperformance is fading. Traders commonly watch this quadrant for early signs that a relative leader is losing steam.
Lagging
Ratio below the benchmark, momentum negative, the asset is underperforming and that underperformance is still accelerating. Commonly read as the weakest relative position in the group.
Improving
Ratio below the benchmark, momentum turning positive, the asset is still underperforming overall, but the pace of underperformance is fading or reversing. Some traders watch this quadrant for potential early relative-strength turnarounds.
Assets are commonly observed rotating clockwise through leading → weakening → lagging → improving → leading over time as their relative trend matures and fades. This clockwise tendency is an empirical pattern seen often enough to be widely discussed, not a guaranteed law, a tail can reverse direction, stall near the center of the chart, or skip a quadrant entirely.
Commonly Varied Parameters
| Parameter | What it controls | Trade-off |
|---|---|---|
| Ratio smoothing period | How much the relative strength ratio itself is smoothed before plotting. | Shorter smoothing reacts faster to a relative-strength shift but produces a choppier tail; longer smoothing is steadier but slower to turn. |
| Momentum lookback window | The window used to measure the ratio's rate of change. | A shorter window flags quadrant changes sooner but is more sensitive to noise; a longer window is steadier but lags a genuine shift longer. |
| Benchmark selection | What every asset's ratio is measured against. | A broad index, a sector index, and an equal-weight benchmark can each place the same asset in a different quadrant, verify which benchmark a given platform or chart is using. |
| Tail length | How many trailing plotted points are shown as the asset's path. | A longer tail shows more rotation history but can clutter a chart with many assets plotted at once. |
There is no single universally standardized setting the way MACD has a widely cited 12/26/9 default, commonly cited defaults vary by platform and vendor, so verify the specific smoothing and lookback periods a chart is using before comparing quadrant positions across platforms or assets.
Why RRG Produces False Signals
- It's relative, not absolute, an asset can plot in the leading quadrant while its own price is falling, simply because it's falling less than the benchmark, and vice versa.
- Clockwise rotation isn't guaranteed, a tail can reverse direction, stall near the center of the chart where the ratio is close to the benchmark, or skip a quadrant entirely.
- Benchmark choice changes the picture, because the ratio is calculated directly against the benchmark, switching benchmarks can move an asset from one quadrant to another without anything about the asset itself changing.
- Parameter sensitivity, different smoothing and momentum-window choices can place the same asset in different quadrants at the same point in time, so results can vary between platforms.
- Near-center noise, when the ratio sits close to the benchmark (near the center of the chart), small price moves can flip an asset between quadrants without a meaningful change in relative trend.
Common Mistakes
- Treating quadrant position alone as a buy or sell signal, RRG describes relative trend, not entry timing, risk, or absolute price direction.
- Ignoring the benchmark choice, comparing a stock's RRG position against a broad index versus its own sector index can tell two different stories.
- Assuming the clockwise rotation always completes, an asset in the improving quadrant is not guaranteed to reach leading; it can reverse back toward lagging.
- Comparing quadrant positions across platforms with different default periods without checking whether the underlying smoothing and momentum windows actually match.
Limitations
Both RRG components are calculated from past prices, so it is a lagging, descriptive tool: it visualizes a relative trend that is already underway rather than predicting where it goes next. It says nothing about an asset's absolute price direction, volatility, liquidity, or fundamentals, only its performance relative to the chosen benchmark. And because the ratio and momentum values depend on the benchmark and lookback settings chosen, the same asset can appear in different quadrants on different platforms at the same time.
A Picture of Relative Performance, Not Absolute Return
A relative rotation display plots each asset by its strength against a benchmark and by the momentum of that relative strength. Everything on it is relative, which means an asset can sit in the leading quadrant while falling in price, provided it falls less than the benchmark.
That property makes it a rotation tool rather than an entry tool. It is useful for deciding where within an already-committed allocation to concentrate, and it is not useful for deciding whether to be invested at all, because it has no view on the benchmark itself.
The mistake is reading the rotational tendency as a rule. Assets frequently move around the quadrants in the expected clockwise pattern and frequently do not, reversing direction or crossing without completing a rotation. The expected path is a tendency observed in the display, not a mechanism.
The picture also changes entirely with the benchmark chosen. The same set of assets measured against a broad index and against a sector index produce different positions and different apparent leadership, so the benchmark selection is an analytical decision rather than a setting.
RRG FAQs
What is a Relative Rotation Graph (RRG)?
A Relative Rotation Graph (RRG) is a charting technique, popularized by Julius de Kempenaer, that plots a group of assets against a benchmark using two components: a normalized relative strength ratio on one axis and the momentum of that ratio on the other, so a whole group's relative trends can be compared on a single chart.
What are the four RRG quadrants?
The four quadrants are commonly labeled leading (outperforming the benchmark with rising momentum), weakening (still outperforming but momentum is fading), lagging (underperforming with falling momentum), and improving (still underperforming but momentum is turning up).
Does an asset always rotate clockwise on an RRG?
No. Assets are commonly observed rotating clockwise through the four quadrants over time, but this is an empirical tendency, not a guaranteed law, a tail can reverse direction, stall near the center, or skip a quadrant entirely.
What's the difference between the relative strength ratio and ratio momentum?
The relative strength ratio is the asset's price divided by the benchmark's price, normalized so it can be tracked over time, it answers whether the asset is outperforming or underperforming. Ratio momentum is that ratio's rate of change over a recent window, it answers whether the outperformance or underperformance is accelerating or fading.
What benchmark should be used for an RRG?
Any benchmark the assets are meaningfully compared against, a broad index for individual stocks or sector ETFs, or a sector index for comparing stocks within that sector. The choice of benchmark changes where every asset plots, since the ratio is calculated against it directly.
Is RRG a leading or lagging indicator?
Both components are calculated from past prices, so RRG is fundamentally a lagging, descriptive tool, it visualizes a relative trend that is already underway rather than predicting where it goes next.
Why is the rotation described as clockwise, and what breaks that pattern?
The typical progression through the quadrants arises because momentum in relative strength tends to turn before the relative strength level itself does, which traces a clockwise path when momentum is plotted against level. The pattern breaks when relative performance reverses sharply enough that both measures move together, producing a jump across quadrants rather than a rotation. Fast reversals are exactly when the visual metaphor is least reliable.
How does the choice of benchmark change the entire graph?
Every position is measured relative to the benchmark, so changing it can move an asset from one quadrant to another without anything about that asset changing. A sector measured against a broad index and against its own supersector can appear strong in one view and weak in the other. Stating the benchmark is inseparable from stating the conclusion.
Does the length of the tail on the graph indicate anything?
The tail shows the path traced over the chosen number of prior observations, so a long tail indicates rapid movement through the space and a short one indicates stability. Tail length is partly a function of the observation interval chosen, so a weekly and a daily view of the same period produce different-looking tails. It describes recent variability rather than predicting continuation.
References
- CMT Association: Technical Analysis Body of Knowledge and Research
- CFA Institute Research and Policy Center: Investment Research
- TA-Lib: Technical Analysis Function Library Documentation
- Julius de Kempenaer popularized Relative Rotation Graphs (RRG) as a way to visualize relative strength and momentum rotation across a group of assets against a benchmark.
- SEC Investor.gov: Introduction to Investing