Understanding the Engine of RRG: A Complete Breakdown of RS Ratio And RS Momentum

Introduction: The Foundation of Relative Rotation Graphs (RRG)

Relative Rotation Graphs (RRG) are designed to solve one of the most persistent challenges in market analysis: comparing the relative performance of multiple assets against a single benchmark in a clean, intuitive way.

For analysts, portfolio managers, and serious investors, analysing dozens of relative strength charts individually is inefficient and often counterproductive. Insights get buried in noise.

This is exactly the problem that Relative Rotation Graphs were built to solve.

At the heart of every RRG lies a powerful analytical engine. Just as an engine relies on key mechanical components to generate motion, an RRG is powered by two specialised indicators:

• JDK RS-Ratio
• JDK RS-Momentum

Together, these indicators form the drivetrain of the RRG, transforming complex relative performance data into a single, visual framework that tracks trend strength and trend momentum simultaneously.

Understanding how RS-Ratio and RS-Momentum work is the first and most important step to mastering Relative Rotation Graph analysis.

What Is JDK RS-Ratio? Measuring Relative Trend Strength

The JDK RS-Ratio is a proprietary indicator designed to measure the trend strength of a security’s relative performance compared to a benchmark.

While it is derived from ratio analysis (similar to a traditional price relative line), it is not the same as a raw relative strength chart.

How RS-Ratio Works

• RS-Ratio is a smoothed and normalised indicator
• It focuses on the trend of relative performance, not short-term fluctuations
• It acts as a lagging indicator, confirming trends rather than predicting them

In simple terms:

RS-Ratio tells you whether an asset is in a relative uptrend or downtrend—and how strong that trend is.

The Importance of the 100 Level in RS-Ratio

The 100 level is the critical reference point for RS-Ratio interpretation.

The distance from 100 matters:

• RS-Ratio at 101 → Mild relative strength
• RS-Ratio at 105 → Strong, established relative uptrend

Because RS-Ratio is intentionally lagging, it filters out short-term noise and focuses only on sustained, meaningful relative trends, a key reason why RRGs are widely used in professional portfolio analysis.

What Is JDK RS-Momentum? Measuring the Rate of Change

While RS-Ratio measures trend strength, it does not explain whether that trend is improving or deteriorating.

This is where JDK RS-Momentum comes in.

RS-Momentum measures the rate of change of the RS-Ratio itself. In other words, it is an indicator of an indicator.

Why RS-Momentum Is Essential

Consider this scenario:

• Asset A has an RS-Ratio of 102
• Is this bullish or bearish?

The answer depends on direction:

• RS-Ratio rising from 100 → Strengthening trend
• RS-Ratio falling from 103 → Weakening trend

RS-Momentum was created to provide this missing context.

RS-Momentum as a Leading Indicator

Unlike the RS-Ratio, the RS-Momentum is a leading indicator. Because it tracks acceleration and deceleration, it often signals changes before they appear in RS-Ratio.

The most important reference level is, again, 100.

Key RS-Momentum Signals

• RS-Momentum crosses above 100
• Indicates improving momentum
• Often occurs near a trough in the RS-Ratio
• Signals potential trend improvement or reversal
• RS-Momentum crosses below 100
• Indicates weakening momentum
• Often occurs near a peak in the RS-Ratio
• Signals potential trend exhaustion

Because RS-Momentum is more sensitive by design, it fluctuates more frequently around the 100 level than RS-Ratio.

How RS-Ratio and RS-Momentum Work Together on an RRG

The real power of Relative Rotation Graphs emerges when RS-Ratio and RS-Momentum are combined.

On an RRG chart:

• X-axis → JDK RS-Ratio
• Y-axis → JDK RS-Momentum
• Center point → (100, 100), representing benchmark-neutral performance

Functional Roles of Each Indicator

Quadrants and Relative Performance States

The interaction between RS-Ratio and RS-Momentum determines an asset’s position in the four RRG quadrants:

• Leading: RS-Ratio > 100 & RS-Momentum > 100
• Weakening: RS-Ratio > 100 & RS-Momentum < 100
• Lagging: RS-Ratio < 100 & RS-Momentum < 100
• Improving: RS-Ratio < 100 & RS-Momentum > 100

For example, an asset in the Leading quadrant is:

• In a strong relative uptrend
• Experiencing positive momentum
• Being pushed further to the right on the RRG over time

This combined view allows investors to track relative leadership, deterioration, and rotation with far greater clarity than traditional charts.

Conclusion: Building the Foundation for RRG Analysis

Understanding Relative Rotation Graphs begins with mastering their core components.

• RS-Ratio delivers the verdict on whether a relative trend is established and how strong it is.
• RS-Momentum provides the forecast, revealing whether that trend is accelerating or losing strength.

Together, they map the rotational journey of assets across RRG quadrants, offering a powerful framework for sector rotation, relative strength analysis, and portfolio positioning.

With a clear understanding of RS-Ratio and RS-Momentum, you now have the essential foundation needed to confidently interpret RRG charts and apply them effectively in real-world market analysis.

Explore the RRG chart on sharpely.

FAQs

1) What does the RS-Ratio indicate in RRG?

RS-Ratio measures the strength of an asset’s relative trend compared to a benchmark. Values above 100 indicate a relative uptrend, while values below 100 indicate a relative downtrend.

2) Is RS-Momentum a leading indicator?

Yes. RS-Momentum is a leading indicator because it measures the rate of change of the RS-Ratio and often signals potential trend reversals before they appear in the RS-Ratio.

3) Why is the 100 level important in RRG?

The 100 level represents benchmark-neutral performance. Values above or below this level determine whether an asset is outperforming or underperforming the benchmark.

4) How are RS-Ratio and RS-Momentum used together?

RS-Ratio defines trend strength, while RS-Momentum defines trend direction and acceleration. Together, they determine an asset’s position and movement within RRG quadrants.