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Hi Tomasz,
>This one is called "Relative PERFORMANCE" (not relative strength)
Ok, two names for the same concept.
For Investopedia 'Relative Strength: a measure of price trend that
indicates how a stock is performing relative to other stocks in its
industry. It is calculated dividing the _price performance_ of a stock
by the _price performance_ of an appropriate index for the same time
period.'
Dividing is a bad idea, subtracting is right. Another way to look at
it is plotting one performance against the others, just like Relative
Performance Charts.
Clearly one can sofisticate the concept. For example O'Neil's RS compare
percentage changes calculated as front-end weighted averages of 3, 5, 9
and 12 months. Chuck Rademacher once pointed to a Columbine Capital's
document that futher developed the concept in order to take into account
of stock's alpha and beta. There are really many possibilities and in
fact RS seems to be one of the few tools that really works.
--
Franco
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