Lesson T9.3 · 3 of 5 · Multiple timeframes and combining signals
Relative strength of a stock against the index, and related markets
Relative strength compares a share with a benchmark, usually the index: you divide the share price by the index level and watch how the ratio changes. If the line rises, the share is beating the market, even when both are falling. It is not the same as RSI, which only compares a share with its own past.
Terms in this lesson
- Stock market index
- A basket of stocks that shows how a market is doing: S&P 500, DAX, BET.
- Correlation
- How often two investments rise and fall at the same time.
- Bond yield
- How much you earn per year from a bond, compared with the price you paid.
What is a relative strength line and how is it calculated
Definition
Relative strength
Share price ÷ index level.
StockCharts calls it the “Price Relative”: a ratio chart of two securities. It rises when the share does better than the benchmark and falls when it does worse. The value itself means nothing (0.0125 or 0.0140 tells you little); what matters is the direction. That is why the line is often started at 100.
A teaching example over 12 weeks. The share rises from 100 to 112.0 in week 6, dips to 107.2 and ends at 112.4. The index rises to 106.5, falls to 97.5 and ends at 100.5.
- Index falls, ratio rises
The ratio of the share to the index, started at 100, rises almost every week, from 100 to 111.8. In weeks 6-10, when both prices fall, the ratio climbs from 105.2 to 109.9.
In weeks 6-10 of the example, the index fell 8.45% while the share fell only 4.29%. Both lost money, but the relative strength line rose from 105.2 to 109.9. When the market recovered, the share started from higher up: over the 12 weeks it gained 12.4%, the index 0.5%.
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Create a free accountRelative strength is not RSI (the Relative Strength Index)
| Relative strength | RSI | |
|---|---|---|
| Compares the share with | an index or another asset | its own past |
| Calculation | share price ÷ index | from average gains ÷ average losses over 14 days |
| Values | no fixed levels; direction matters | between 0 and 100, with 70 and 30 levels |
The names are alike, but they answer different questions: “is it beating the market?” and “has it risen too fast compared with itself?”.
Comparing a share with the index on a chart
When you start two lines at 100, you can see at a glance which has gained more since the start date. It is a comparison of performance, not a forecast: a share that has beaten the market for months may carry on or may stall. The momentum lesson shows what research has found about such winners.
Related markets: the dollar, bonds, oil and gold
Intermarket analysis looks at how markets move against one another. In his classic book “Trading with Intermarket Analysis”, John Murphy describes several links, summarised by StockCharts:
These links are not laws. Murphy notes that the world moved from an inflationary to a deflationary environment around 1998, and StockCharts adds that big events, such as the 2008 US financial crisis, can throw some relationships out for a few months. The figures show how far a correlation can shift:
The figures come from Vanguard’s analysis of 4 January 2026 (shares: MSCI ACWI; bonds: the Bloomberg Global Aggregate, hedged to US dollars; US indices for the early years of the comparison back to 1977). A correlation of -7% is close to zero: on average the two moved almost independently, with a slight tendency to go opposite ways.
Lessons are educational. They are not a recommendation to buy or sell. Investing involves risk and you can lose money. Sources: StockCharts ChartSchool, “Price Relative / Relative Strength”, “Relative Strength Index (RSI)” and “Intermarket Analysis” (after John Murphy, “Trading with Intermarket Analysis”); Vanguard, “Understanding the dynamics of stock/bond correlations”, 4 January 2026; accessed 29 October 2026. The first two charts are teaching examples; the third uses recent real data, which changes daily.