Unlocking the Power of Relative Rotation Graphs

Understand Relative Rotation Graphs

Relative Rotation Graphs (RRGs) are a visualisation tool used in technical analysis to compare the relative performance of different securities or assets. The tool plots the relative strength and momentum of a set of stocks on a chart, where the horizontal axis represents the relative strength and the vertical axis represents the relative momentum.

Stocks that are performing well and have a positive momentum will be plotted in the top-right quadrant, while stocks that are underperforming and have a negative momentum will be plotted in the bottom-left quadrant. RRGs can help identify leading and lagging stocks within a particular market or sector, and can also be used to identify potential trade opportunities.

With a tool, animation can be added to these rotating plots on the graph. Allowing much faster visual comparison than comparing regular graph for each pair. As this could number 45 comparison graphs if looking at 90 stocks in a market.

How could RRG be used to compare performance of work

Relative Rotation Graphs (RRGs) can be used to compare the performance of a wide range of different securities or assets, including stocks, bonds, commodities, currencies, and even sectors or market indices. The key principle behind RRGs is that they provide a visual representation of the relative strength and momentum of different securities or assets, which can help investors identify trends and patterns that may not be immediately obvious from looking at individual charts.

One way RRGs can be used to compare performance is by plotting the relative performance of different securities or assets in a particular market or sector. For example, an investor could use RRGs to compare the performance of different stocks within the same industry, or to compare the performance of different sectors within the overall stock market. This can help the investor to identify leading and lagging sectors or stocks and make investment decisions accordingly.

RRGs can also be used to compare the performance of different assets classes. For example, an investor could use RRGs to compare the performance of stocks, bonds, and commodities. This can help the investor to identify trends and patterns in the performance of different asset classes and make investment decisions accordingly.

In addition, RRGs can also be used to compare the performance of different geographical regions, currencies or other financial instruments.

In summary, the flexibility of Relative Rotation Graphs allows to compare the relative performance of any securities, assets, sectors, asset classes, geographical regions, currencies or other financial instruments.

How to calculate metrics for RRG

Plotting the relative strength and momentum of different securities or assets on a chart.

To calculate the relative strength of an asset, use a ratio of the assets's price or return to a benchmark or index. For example, the relative strength of a stock might be calculated as the ratio of the stock's price to the price of a benchmark index such as the S&P 500.

To calculate the relative momentum of a security or asset, use a momentum indicator such as the Rate of Change (ROC) or the Moving Average Convergence Divergence (MACD) indicator. These indicators measure the rate of change in the security's price or return over a certain period of time. For example, the ROC indicator would be the difference between today's closing price and the closing price x days ago divided by the closing price x days ago.

Once the relative strength and momentum of each security or asset have been calculated, they can be plotted on a chart with the relative strength on the horizontal axis and the relative momentum on the vertical axis.

There are different ways to calculate the relative strength and momentum.

Calculate Rate of Change

The Rate of Change (ROC) is a momentum indicator that measures the rate of change in the price or return of a security or asset over a certain period of time. There are different methods to calculate the ROC, one common approach is the following:

Choose a time period for the ROC calculation. This is typically a number of days, such as 10 days, 20 days, or 50 days.

Calculate the closing price of the security or asset for each day in the chosen time period.

Subtract the closing price from the chosen time period ago from the most recent closing price.

Divide the result from step 3 by the closing price from the chosen time period ago. This gives the rate of change in percentage terms.

Plot the resulting ROC values on a chart, where the horizontal axis represents the time period and the vertical axis represents the rate of change.

For example, if you choose a 10-day time period and the closing price of a security was $100 on the 10th day ago, $110 on the most recent day, the Rate of Change would be (110-100)/100 = 10%.

Calculate MACD

The Moving Average Convergence Divergence (MACD) indicator is a momentum indicator that is used to identify trends and potential trade opportunities in the price or return of a security or asset.

One method to calculate the MACD is as follows:

Choose two time periods for the calculation, typically a short-term period such as 12 days and a long-term period such as 26 days.

Calculate the exponential moving average (EMA) of the closing price or return of the security or asset for each of the two chosen time periods.

Subtract the longer-term EMA from the shorter-term EMA to obtain the MACD line.

Calculate a 9-day EMA of the MACD line to obtain the signal line.

Plot the MACD line and the signal line on a chart, where the horizontal axis represents the time period and the vertical axis represents the MACD values.

Additionally, a histogram can be plotted to visualise the difference between the MACD and signal line, this is done by subtracting the signal line from the MACD line.

It's also important to note that the MACD is a lagging indicator and should be used in conjunction with other indicators and analysis techniques for a more complete market analysis.

How could RRG measure tasks done by a team?

These graphs are typically used as a momentum indicator in technical analysis to measure the rate of change in the price or return of a security or asset, but it could also be used in other fields to measure the rate of change in other types of data.

In the context of measuring the work done by a team, ROC could be used to measure the rate of change in the team's productivity, output, or performance over a certain period of time.

• Work completed parts
• Number of tasks completed
• The number of customer complaints received
• The team's overall performance score
• Work items per client account or project

One way to use it to measure the work done by a team is to identify a specific metric that represents the team's work output or performance, such as the number of tasks completed, the number of customer complaints received, or the team's overall performance score. Then you would track the value of this metric over a period of time, such as a week or a month. You would calculate the ROC using the method described earlier, which is the difference between the current value and the value from a specific period ago divided by the value from that specific period ago.

The resulting value will give you a percentage change in the team's performance over the chosen time period, so it could help you identify trends and patterns in the team's work output. A positive value would indicate that the team's work output is increasing, while a negative value would indicate that the team's work output is decreasing.

A comparison market benchmark would be needed to build a Relative Rotation Graph, suggestion could be previous year output, other teams, or an index of work across projects. Attention is needed to the formula used to take into account Priority, Value of work Multiplier and Time Taken vs the Planned Time.

Making the numbers fit into a scale and more comparable makes for better balance i.e. for time to money on weekly scheduled tasks

( ( Time Hours X Spent ) / Target Spend ) x Multiplier.

It's worth noting that this is just one way to use ROC to measure the work done by a team and is a lagging indicator and should be as part of a complete picture of the team's performance.

Further reading on RRGs

There are several resources available for those looking to learn more about Relative Rotation Graphs (RRGs). Here are a few options:

• "Relative Rotation Graphs: A Visual Guide to the Stock Market" by Julius de Kempenaer - This book provides a comprehensive introduction to RRGs and how they can be used to analyse and trade stocks, sectors, and market indices.
• "Relative Rotation Graphs: A Revolutionary New Way to Visualize and Interpret the Markets" by J.C. Parets - This book provides a detailed look at RRGs and how they can be used to analyse and trade a wide range of different securities and assets.
• "Relative Rotation Graphs: An Introduction" by David van Dijk - This article provides a brief overview of RRGs and how they can be used to analyse securities and assets.
• "Relative Rotation Graphs: Understanding the Big Picture" by Martin Pring - This article provides an introduction to RRGs and how they can be used to analyse securities and assets.
• "Relative Rotation Graphs: A New Way to analyse Sectors" by Tom Bowley - This article shows how RRGs can be used to analyse sectors and make investment decisions.
• "Relative Rotation Graphs: A Powerful Tool for Analyzing Sectors and Markets" by StockCharts.com - This article provides an introduction to RRGs and how they can be used to analyse sectors and markets.

These resources should provide a good starting point for learning more about RRGs and how they can be used in technical analysis.

How to interpret RRGs

Relative Rotation Graphs (RRGs) can be a powerful tool for analysing assets, but it's important to understand how to read and interpret them in order to get the most value from them. Here are some steps that can help you read and interpret them:

![[rrg-tablerank.png]]]

Familiarize yourself with the layout of the RRG. The horizontal axis represents the relative strength of the security or asset, and the vertical axis represents the relative momentum. Securities that are performing well and have a positive momentum will be plotted in the top-right quadrant, while securities that are underperforming and have a negative momentum will be plotted in the bottom-left quadrant.

Look for securities or assets that are in the leading quadrant (top-right). These securities or assets are likely to be performing well and have a positive momentum. They may be good candidates for further research and analysis.

Look for securities or assets that are in the lagging quadrant (bottom-left). These securities or assets are likely to be underperforming and have a negative momentum. They may be good candidates to avoid or to consider selling.

Look for securities or assets that are in the weakening quadrant (top-left). These securities or assets are likely to be losing relative strength and momentum. They may be good candidates to avoid or to consider selling.

Look for securities or assets that are in the improving quadrant (bottom-right). These securities or assets are likely to be gaining relative strength and momentum. They may be good candidates for further research and analysis.

Pay attention to the rotation of the securities or assets, the direction of the tail gives an indication of the direction of the rotation. Securities or assets that are rotating clockwise are likely to be improving while those rotating counterclockwise are likely to be weakening.

Use the RRG in conjunction with other analysis techniques, such as fundamental analysis and technical analysis, to get a more complete picture of the security or asset's performance.

Keep in mind that RRGs are a lagging indicator, so it's important to use them in conjunction with other indicators and analysis techniques to get a complete picture of the market.

By following these steps, you should be able to read and interpret RRGs effectively and gain valuable insights into the performance of different assets.

If you would like to see how we have been researching using this or if you give it a try I'd be interested in a chat.

After Thought

The four quadrant plot turns up in a lot of systems, but remind me also of Cynefin type areas though in a different order, Complicated, Clear, Chaotic, Complex. Or this visual for a process state under control.

#data #management #momentum