Section: 3 Market Structure

Sub Section: 3 Relative Strength

Relative Strength measures the extent to which a security has outperformed or under performed either the market as a whole or its particular industry. Relative strength is computed by calculating the ratio of the price of the security to a price index for the industry. For example, the relative strength of SAMBA versus the banking sector would be measured by movements in the ratio of the price of SAMBA divided by the level of the banking sector index. A rising ratio implies that SAMBA has been outperforming the rest of the sector. If relative strength can be assumed to persist over time, then this would be a signal to buy SAMBA.