Relative Rotation Graphs (RRG) illustrate the relative strength and momentum of multiple sectors or individual securities against a common benchmark (such as the Nifty 50 or Nifty 500) on a single two-dimensional chart.
The Two Axes of RRG
- J-DK RS-Ratio (Horizontal Axis): Measures the relative performance of a sector relative to the benchmark. A reading above 100 indicates that the sector is outperforming the benchmark over the measured window.
- J-DK RS-Momentum (Vertical Axis): Measures the rate of change (velocity) of the RS-Ratio. A reading above 100 means the sector's relative strength is accelerating.
The Four Rotation Quadrants
As market cycles progress, sectors typically trace a clockwise rotation through four quadrants:
- Leading (Top Right): RS-Ratio > 100 and RS-Momentum > 100. Strong relative strength with positive, accelerating momentum.
- Weakening (Bottom Right): RS-Ratio > 100, but RS-Momentum < 100. Still outperforming the benchmark, but relative momentum is decelerating.
- Lagging (Bottom Left): RS-Ratio < 100 and RS-Momentum < 100. Underperforming the benchmark with deteriorating momentum.
- Improving (Top Left): RS-Ratio < 100, but RS-Momentum > 100. Currently underperforming, but relative momentum is turning upward and building strength.
Analyzing these trajectories helps identify rotational shifts across cyclical, defensive, and high-beta industry groups over multi-month periods.