To analyze stock performance using relative strength analysis, compare a stock’s performance with a benchmark index (like Nifty 50) or other stocks in the same sector. If the stock is outperforming the benchmark consistently, it shows strong relative strength. This method helps you pick stocks that are leading the market instead of lagging behind.

What is Relative Strength Analysis in Stock Market?

Relative Strength Analysis (RSA) is a technique used to compare a stock’s performance against a benchmark index or another stock. It shows whether the stock is outperforming or underperforming. A rising relative strength means the stock is doing better than the comparison, which is a bullish signal for investors.

Why Should Investors Use Relative Strength Analysis?

RSA helps investors identify winning stocks in a trending market. Instead of just looking at price growth, RSA reveals which stocks are leading the rally. It’s ideal for short-term traders and long-term investors who want to focus on strong performers rather than laggards.

How to Calculate Relative Strength Ratio?

The Relative Strength Ratio is calculated by dividing the price of the stock by the price of the benchmark index or another stock:

Relative Strength = Stock Price / Benchmark Price

Plotting this ratio over time shows if the stock is gaining or losing strength compared to the market. A rising line means outperformance.

How to Use Relative Strength Index (RSI) with RSA?

RSI is a momentum indicator that shows if a stock is overbought or oversold. When combined with Relative Strength Analysis, you get a clearer picture. If a stock shows strong relative strength and an RSI between 40–70, it’s considered a strong candidate for buying. RSI confirms the timing, while RSA confirms the trend.

Which Stocks Work Best with Relative Strength Analysis?

RSA works best with trending and liquid stocks—mostly in large-cap or strong mid-cap segments. Stocks with consistent upward momentum, rising volumes, and strong fundamentals often show strong relative strength. Avoid low-volume or highly volatile stocks for RSA-based decisions.

What Are the Risks of Using Only Relative Strength?

RSA does not consider fundamentals. A stock might outperform the market but still be overvalued or risky. Always combine RSA with other tools like earnings reports, PE ratio, and industry analysis. Also, RSA works best in trending markets—not sideways or choppy ones.