Relative Strength (vs Index)
How a stock or sector is performing compared to a benchmark index like the S&P 500. Outperforming the index = positive relative strength.
Relative strength in the equity context compares a stock's price performance to a benchmark — typically the S&P 500. If AAPL is up 15% and the S&P 500 is up 8% over the same period, AAPL has strong relative strength.
Relative strength is a leadership indicator. Stocks showing RS before the broad market bottoms tend to lead the next rally. Stocks that lag during a bull market or fall more than the index during a correction are showing relative weakness — a warning.
Do not confuse this with the RSI (Relative Strength Index), which is a momentum oscillator based only on the stock's own price history. RS here always involves a comparison to an external benchmark.
Example
The S&P 500 is down 10% year-to-date. Stock A is down 3% and Stock B is down 20%. Stock A has strong relative strength — likely an institutional favorite they are defending. Stock B has poor relative strength — likely being distributed. In a market recovery, Stock A is more likely to lead.
Related Terms
Beta
A measure of a stock's volatility relative to the market. Beta > 1 means it moves more than the index; Beta < 1 means it moves less.
IntermediateETF
A basket of securities that trades on an exchange like a single stock. ETFs give instant diversified exposure to an index, sector, or theme.
BeginnerS&P 500
A market-cap-weighted index of 500 large US companies. The most widely used benchmark for US stock market performance.
BeginnerSector
A broad grouping of companies with similar business activities. The S&P 500 uses 11 GICS sectors such as Technology, Financials, and Energy.
BeginnerSector Rotation
The movement of institutional money between sectors of the economy as the business cycle evolves. One sector's outperformance often comes at another's expense.
Advanced