Relative Strength vs the Market: The Ratio, Not the RSI
Relative strength compares a stock with the market by dividing its price by an index, such as the S&P 500, and watching the ratio. A rising ratio means the stock is beating the index; a falling one means it is lagging, even while its own price climbs.
Relative strength answers a different question from a price chart. The chart asks whether a stock went up. The ratio asks whether it went up more than the market, which is the question that decides whether owning it beat owning an index fund.
How it works
Divide the stock’s closing price by the index’s closing price on the same day. Do it for every day and plot the result. Because the raw ratio is an awkward small number, it is usually rebased: divide every value by the first one, so the line starts at exactly 1.0.
From there the line reads directly. At 1.5, the stock has gained 50% more than the index since the start. At 0.5, it has done half as well. The level of the price does not matter, only the comparison.
The benchmark should fit the stock. The S&P 500 is the usual choice for large US companies. A sector index, or a fund tracking one, answers the narrower question of whether a stock beat its own industry.
Relative strength is not the RSI
The names overlap and the ideas do not. The relative strength index, or RSI, is an oscillator from 0 to 100 that compares a stock’s recent up closes with its recent down closes. It never looks at any other security.
Relative strength in this sense always involves two things: the stock and a benchmark. A stock can have an RSI reading of 80, overbought by the usual rule, while its ratio line is falling because the index rose faster that week. The two can disagree completely and both be correct.
A worked example
Microsoft against the S&P 500, from 31 December 2014 to 10 August 2026. Microsoft closed at $46.45 on the first date and $506.06 on the second, split-adjusted. The index closed at 2,058.90 and 7,753.11.
Step one, each move as a multiple. Microsoft: 506.06 ÷ 46.45 = 10.89. The index: 7,753.11 ÷ 2,058.90 = 3.77.
Step two, divide one by the other. 10.89 ÷ 3.77 = 2.89. Microsoft’s relative strength line, rebased to 1.0 at the end of 2014, finished at 2.89. On price alone it did almost three times as well as the index.
Now Disney over the same dates. Its price went from $94.19 to $103.18, a multiple of 1.10. Divided by the index’s 3.77, that gives 0.29. Disney ended higher than it started and still did less than a third as well as the market.
Reading the line
Direction matters more than level. A line at 2.0 that has been falling for a year says the lead is shrinking. A line at 0.8 that has turned up says the stock has started beating the index, even though it is still behind over the whole period.
Microsoft shows the first case. Its line peaked at 3.73 at the end of July 2025 and was back at 2.89 by August 2026, while the stock stayed far ahead of the index over the full period.
Price and ratio can point in opposite directions. A stock that rises 10% while the index rises 20% has a falling line. A stock that falls 5% while the index falls 15% has a rising one. Relative strength readers often care more about the second case than the first.
The original data
The same eleven stocks from the site’s swing backtests were measured against the S&P 500, using daily closes from the Yahoo Finance chart feed, fetched on 25 September 2026, price only. The window runs from 31 December 2014 to 10 August 2026, the end date of those backtests. PayPal starts on 6 July 2015, its first day in the feed, and Walgreens is missing because the feed no longer serves it.
All seven big winners ended with a ratio above 1.0, and all four laggards ended below it. Microsoft finished at 2.893 and Disney at 0.291. Nike, whose price fell −12.41%, ended at 0.233.
The most useful rows are the two that rose and still lagged. Intel’s price rose +168.72% over the window while the index rose +276.57%, so its ratio ended at 0.714. Most of Intel’s gain came in 2026: at the end of 2025 it closed at $36.90, almost exactly its $36.29 close at the end of 2014.
PayPal rose +60.91% from July 2015 while the index rose +274.77% over the same dates, a ratio of 0.429. On a price chart both look like winners. Against the market both were well behind, which is why the swing backtests grouped them with the laggards.
Then the same comparison over every one-year span. For each of 2,666 overlapping 252-day spans in the window, the stock either beat the index or did not. Nvidia beat it in 83.4% of spans and Microsoft in 78.5%. Tesla, despite a +2,131.56% rise, beat it in only 56.8%. Disney beat it in 27.4%.
PayPal is the odd one out: it beat the index in 54.3% of its 2,539 spans, more than half, and still finished far behind, a sign that its lagging stretches were deeper than its leading ones. The full table is published as the twelve-stock summary, with the daily closes it was computed from. Past prices only, no dividends, and no forecast.
When it fails
It fails when the leader turns. A ratio line is a record of what has already happened. Microsoft’s line fell from 3.73 to 2.89 in about a year, and a trader buying at the peak because the line looked strongest bought at the top of its lead.
It fails on the wrong benchmark. Comparing a small bank with the S&P 500 mixes the bank’s own performance with the gap between banks and technology. A ratio against the stock’s own sector separates the two.
It fails as a timing tool on its own. Tesla beat the index in only 56.8% of one-year spans while rising more than twentyfold. A rule that sold every time the ratio dipped would have been shaken out many times on the way.
It fails when dividends are large. These ratios use price only. A stock paying a large dividend looks weaker on price than on total return, so against a lower-yielding index a price-only line understates it.
And it fails as a promise. A strong line says a stock has been winning, which is the premise of momentum investing, not proof that it will keep winning. The swing backtests’ lesson applies here too: a list of the strongest past performers is a list chosen by its outcome.
Related
A momentum stock is chosen for exactly this kind of past outperformance, and that page covers how the approach behaves when leadership changes. The S&P 500 page explains the benchmark used for every ratio here.
The RSI page covers the oscillator whose name causes the confusion, and why its 70 and 30 lines behave differently in a trend. And beta measures how much a stock tends to move with the market, the other half of any comparison against an index. Every ratio above describes the past.
Put the ratio line under the price chart of anything held for more than a few weeks. A stock that is rising but lagging the index is costing money against the simplest alternative, owning the index, and the price chart alone will never show that.
— Michael Whitman
This page is educational, not financial advice. Test every idea on your own charts before risking money.