Relative Strength

Stock trading dictionary: meaning, example and how traders use it.

Last updated: October 17, 2026

Definition: Relative strength is a measure of how a stock, sector, or asset has performed compared with a benchmark such as the S&P 500 or a group of peers. A rising relative strength line means it is outperforming.

How relative strength works

The simplest calculation divides a stock's price by the price of a benchmark index and plots the ratio over time. When the line rises, the stock is outperforming; when it falls, it is lagging, even if the stock's own price is going up.

Relative strength can also be expressed as a ranking, such as comparing each stock's percentage return over the past three, six, or twelve months against all others in a universe. Momentum strategies built on this idea buy recent leaders and avoid laggards, on the premise that strength tends to persist for a while.

Relative strength example

Suppose over six months a stock rises from $50 to $60, a 20% gain, while the benchmark index rises 8%. The ratio of their returns (1.20 / 1.08) is about 1.11, so the stock outperformed by roughly 11%. Now suppose a second stock rose only 5%. Its price went up, but it underperformed the market, and its relative strength line slopes downward.

Relative strength vs RSI

The names are similar but the tools are different. Relative strength compares one security with another. The Relative Strength Index (RSI), developed by J. Welles Wilder, is an oscillator that looks at a single security's own recent gains and losses, usually over 14 periods, and scales the result from 0 to 100. Readings above 70 are often called overbought and below 30 oversold. RSI is also used to spot divergence between price and momentum.

Limitations of relative strength

Relative strength is a comparison, so the choice of benchmark matters. A small technology company compared with a broad large-cap index may look strong or weak simply because of differences in size or sector, not because of anything specific to the business. The lookback period also changes results: a stock can lead over three months while lagging over twelve. Momentum based on relative strength can reverse quickly when market leadership rotates, sometimes leaving recent leaders with sharp losses. Many investors therefore pair it with fundamental checks and clear exit rules.

How traders use relative strength

  • Stock selection: looking for leaders whose relative strength line makes new highs before the price does, often near a breakout.
  • Sector rotation: comparing sectors to see where money is flowing; the Stock Sector Monitor is built for this kind of comparison.
  • Portfolio review: identifying holdings that persistently lag the portfolio benchmark.

Relative strength describes the past, not the future. Leaders can reverse sharply, and a stock can show strong relative performance during a bear market simply by falling less than the index.

Frequently asked questions

Is relative strength the same as RSI?

No. Relative strength compares a security's performance with a benchmark or another security, while RSI is a momentum oscillator based only on a single security's own price changes.

How do you calculate relative strength of a stock?

A common method divides the stock's price by a benchmark index's price and tracks the ratio over time, or compares percentage returns over the same period.

What is a good relative strength rating?

Ratings systems differ, but a higher ranking simply means stronger past performance than most peers. It is a screening tool, not a guarantee of future returns.

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For information only, not investment advice. See the disclaimer.