Relative Rotation Graphs™

Julius de Kempenaer & Trevor Neil

A new tool to visualize “Relative Strength”

trevor@relativerotationgraphs.com
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What are
Relative Rotation
Graphs™ ?
• A Relative Rotation Graph, or RRG, is a
visualization tool that shows the
rotational characteristics of trends in
relative strength in financial markets
and how they move vis-à-vis a common
benchmark and against each other.

• They are often used to show “(equity)

sector – rotation” but can very well be
applied to other asset classes as well,
including currencies.

• They will help investors to see “the BIG

picture in ONE picture” and they can
help traders to find trading ideas
RRGs Are Currently Available On
Make Up Your Mind:

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 Equities and Bonds

$$$

EQUITIES BONDS

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 What Tools to We (Technical Analysts ) Have?

• Graphs , many different graphs

• Ranging from very simple to very complex

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EQUITIES (SXXP : STOXX 600 index)

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BONDS (RX1 : German Bund future)

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Single security graph provides only a single answer

• Problem with single security graphs is that the only

answer you will get is to invest or not to invest in that
one security

• To view things in a broader context is more difficult

• In our technical toolbox there is one single technique

that helps you to make choices, distinguish between 2
securities.

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The weapon of choice

Everything is Relative strength is Everything

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EQUITIES / BONDS

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Many choices to make

• Equity / Bonds question can (easily) be answered using RS

• RS will be helpful throughout the pyramid / decision tree

$$$

BONDS EQUITIES

USA EUROPE ASIA USA EUROPE ASIA

3 x 3 = 9 – 3 = 6 / 2 = 3 choices

3 we can handle by looking at 3 RS graphs

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Many choices to make

• next step could be to look at sectors.

• for example 10 GICS L1 sectors or 24 GICS L2

industry groups etc.

• 10 x 10 = 100 - 10 = 90 / 2 = 45

• 24 x 24 = 576 - 24 = 552 / 2 = 276

• 100 x 100 = 10.000 – 100 = 4950

• Now that’s more of a challenge

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Sector comparison: Banks vs. STOXX 600

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Sector comparison : Utilities vs. STOXX 600

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JdK RS-Ratio

• The individual RS lines once again give pretty good clue

about indivdual comparisons vs benchmark

• The RS lines answer “good” or “bad”

• They do not answer “how good” or “how bad”

• Or “best” and “worst”

• Raw RS values (sec A/sec B) are like apples and oranges

they cannot be compared

• Normalizing the RS values enables “ranking”

• JdK RS-Ratio
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JdK RS-Ratio

• STOXX 600 sectors ranked by

Sector JdK RS-Ratio
Health Care 104.18
Insurance 103.26 JdK RS-Ratio
Media 101.99
Telecom 101.92
Food & Beverage 101.91 • High values are “good”
Travel & Leisure 101.85

• Low values are “bad”

Real Estate 101.72
Technology 101.62
Pers. & HH Goods 100.99
Utilities
Fin Services
100.55
100.23
• How does this look over
Chemicals 99.99 time?
Banks 99.80
Ind. Goods & Services 98.52
Retail 96.39
Constr. & Materials 96.27
Basic Resources 95.93
Automobiles & Parts 95.67
Oil & Gas 93.18

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STOXX Technology vs. STOXX 600

We need to know the “direction” +/- of JdK RS-ratio

JdK RS-ratio

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 STOXX Technology vs. STOXX 600

JdK RS-Momentum is a normalized version of

the Rate of Change of JdK RS-Ratio

JdK RS-Ratio
&
JdK RS-Momentum

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Putting it all together.

• We have a lot of information now; comparable across

the universe

• The RS approach in general adds value to the investment

process (Kempen&Co research 2004)

• But we still have to flip thru charts to get an idea about

what’s going on in the universe as a whole

• Wouldn’t it be nice if we could put all this information

together in one screen / graph ?

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RELATIVE ROTATION GRAPH ™

-/+ +/+
-/- +/-
Show live
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RELATIVE ROTATION GRAPH ™ - Leading Quadrant

-/+ +/+
-/- +/-
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Leading Quadrant - Green

• Security is outperforming the benchmark

•The security is one of the best in the group

•It’s Relative Trend is positive and it is moving ahead of

the benchmark

•Hold longs in this quadrant

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RELATIVE ROTATION GRAPH ™ - Weakening Quadrant

-/+ +/+
-/- +/-
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Weakening Quadrant - Yellow

• Security is still outperforming the benchmark

•It’s Relative Trend is negative and it is losing ground in

the benchmark

•Reduce or exit positions in this quadrant

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RELATIVE ROTATION GRAPH ™ - Lagging Quadrant

-/+ +/+
-/- +/-
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Lagging Quadrant - Red

• Security is now underperforming the benchmark AND

•It’s Relative Trend is negative and it is falling further

behind the benchmark

•You do not want to have positions in this quadrant

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RELATIVE ROTATION GRAPH ™ - Improving Quadrant

-/+ +/+
-/- +/-
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Improving Quadrant - Blue

• Security is still underperforming the benchmark BUT

•It’s Relative Trend is now positive and it is gaining ground

against the benchmark

•Depending on your attitude to risk, this is where long

opportunities lay

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Over to the live charts to show a current Top Down decision
made using Relative Rotation Graphs

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Disclaimer

DISCLAIMER: The material contained herein is subject to change without notice and is provided for
informational purposes only. It should not be construed as a solicitation or offer to buy or sell any
securities or other financial instrument. We make no representation or warranty of any kind, either
express or implied as to the accuracy, reliability, up-to-dateness or completeness of the information
contained herein. Nothing contained herein constitutes investment, legal, tax or other advice nor is it to
be relied on in any investment decision. You should obtain relevant and specific professional advice before
making any investment decision. The value of investments may go up or down due to various factors
including but not limited to changes in rates of foreign exchange and you may not get back the amount
invested. Past performance is not necessarily a guide to the future. We disclaim any responsibility and
liability whatsoever in this respect.
RRGTM Research is a trading name of RRGTM Consulting BV based in Amsterdam. RRGTM Research and
RRGTM Consulting are not regulated entities.

Please note:

Personal use of the graphing techniques presented is allowed and encouraged, but
RRGTM Research explicitly claims the intellectual property, Registered Trade Marks
and copyrights of these materials.

Use in commercial documents or making the graphs available in commercial

software or systems or for any other commercial use is only permitted after written
permission from RRG Research.
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