Relative Strength is a key metric that compares the performance of an individual stock to that of the broader market. It is one of the key commonalities shared by the greatest stocks in the world.
So how do we find stocks showing RS?
One way to measure relative strength is through the Deepvue Relative Strength (RS) Rating.
Let’s dive into how to use it.
Understanding the RS Rating
At its core, the Relative Strength (RS) Rating is a comparative metric that measures the performance of an individual stock against every other stock in the Deepvue database.
The RS Rating is calculated over different timeframes, with more recent stock performance and timeframes being more heavily weighted in the calculation – more on this later.
This approach ensures that the RS Rating provides an up-to-date and relevant assessment of a stock’s performance relative to the performance of all other stocks in the database.
In Deepvue we have RS Ratings that analyze a stock’s weighted performance over 12 Months, 6 Months, 3 Months, and 1 Month.
Real-World Application: Strong vs. Weak RS Rating
In practice, the RS Rating can be used to identify stocks that are likely to outperform the market.
For example, a stock with a high RS Rating may be a good candidate for a long position, as it indicates that the stock is performing well relative to the broader market.
Conversely, a stock with a low RS Rating may be a good candidate for a short position, as it suggests that the stock is likely to underperform the market.
The RS Rating can also be used in conjunction with other financial metrics to provide a more comprehensive view of a stock’s performance.
For instance, an investor might look at a stock’s RS Rating alongside its earnings per share (EPS) or price-to-earnings (P/E) ratio to get a more holistic understanding of the stock’s potential.
Delving into the Calculation of the RS Rating
The RS Rating is calculated based on a weighted average of a stock’s performance over different time frames relative to the performance of a major market index.
The calculation gives more weight to more recent timeframes than timeframes further back in the past.
All Deepvue Relative Strength Ratings range from 1 to 99 with 99 being the highest and 1 being the lowest possible score.
For example, a stock with a 12-Month RS Rating of 95 is outperforming 95% of the database over the past year.
The RS Rating calculation considers the following factors:
- Short-term performance: This includes the stock’s performance over the past month or three months. Very recent performance is given significant weight in the RS Rating calculation because it provides the most up-to-date snapshot of a stock’s relative strength.
- Medium-term performance: This includes the stock’s performance over the past six months. Performance going beyond the recent past, but not too far back is also given substantial weight in the calculation, as it provides a broader perspective on a stock’s relative strength.
- Long-term performance: This includes the stock’s performance over the past twelve months or year. While performance further in the past is given less weight in the calculation, it still plays an important role in assessing a stock’s overall relative strength.
The Deepvue RS Ratings
- 1-Month: Very short-term non-weighted RS Rating for new IPOs/Fast Movers. Calculated the same as the Absolute Strength (AS) Rating 1-Month.
- 3-Month: Short-term weighted RS Rating.
- 6-Month: Intermediate-term weighted RS Rating.
- 12-Month: Long-term weighted RS Rating. The most popular RS Rating and frequently used in CANSLIM related screens.
Conclusion: The Power of RS Rating
In conclusion, the Deepvue RS Rating is a powerful tool that can help investors assess a stock’s performance relative to all other stocks in the database.
The RS Rating is a helpful data point across multiple time frames that can be powerfully used when screening and analyzing stocks.
Whether you’re a new investor or an experienced trader, understanding the Deepvue RS Rating can help you navigate the stock market more effectively.
Two potential RS Rating-based Screens in Deepvue:
Frequently Asked Questions (FAQs)
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