Relative Strength Ranker

No. RSI (Relative Strength Index) is a momentum oscillator measuring a stock's own price movement. Relative Strength compares a stock's performance to a benchmark. They are different concepts with similar names.

For broad market comparison, use XIU (TSX 60 ETF) or S&P/TSX Composite. For sector-specific analysis, use sector ETFs like XFN (financials), XEG (energy). Choose based on what comparison is most relevant.

Weekly is common for medium-term strategies. Daily if more active. RS rankings don't change dramatically day-to-day, so weekly review is often sufficient for portfolio decisions.

Focus on top 20-30% for leaders. Avoid bottom 20-30% (laggards). Very extreme top (99th percentile) may be overextended. Look for stocks entering leadership, not just those at extreme highs.

RS is a technical/relative measure. Consider combining with fundamental analysis. A stock can have good RS temporarily due to speculation. Multi-factor approaches (RS + quality) help filter for sustainable leaders.

Compare price highs/lows to RS line highs/lows. Bearish divergence: price new high but RS lower high. Bullish divergence: price new low but RS higher low. Divergences warn of potential trend changes.

Level 1: Is the sector outperforming the market? Level 2: Is the stock outperforming its sector? Best stocks = leaders within leading sectors. Calculate Sector/Market RS and Stock/Sector RS separately.

Calculate RS for each sector ETF vs broad market. Sectors with rising RS and high rank are gaining favor. Rotate capital into leading sectors, out of lagging sectors. Review monthly or quarterly.

RS ratio is the current relative performance level. RS momentum is the rate of change of RS (is it improving or deteriorating?). Both matter: high RS + high RS momentum = strong leader getting stronger.

Define exit rule: e.g., exit if RS drops below 70th percentile (from top 20%). Or exit if RS line breaks below its moving average. Don't hold laggards hoping they recover.

Steps: 1) Define universe and benchmark, 2) Calculate RS (price ratio or returns) for all stocks, 3) Rank and calculate percentiles, 4) Track RS line trend for each, 5) Generate signals on rank changes, 6) Implement in Python with daily automation.

Academic evidence shows 2-5% annual excess returns for top RS decile. Hit rate ~55-60% for leadership persistence. Sharpe ratio 0.5-1.0. Risk: momentum crashes during market reversals. Performance varies by market regime.

Features: RS across timeframes, RS percentile, RS momentum, technical and fundamental data. Target: predict RS persistence (will stock stay in top quintile?). Models: Random Forest, XGBoost. Walk-forward validation essential.

Causes: market regime change (rotation out of sector), mean reversion after extreme RS, fundamental deterioration, sector headwinds. Mitigate with stops, diversification across sectors, and monitoring RS trend changes.

Risks: sector concentration (diversify), momentum crashes (use stops, reduce in high-momentum markets), crowding (avoid extreme crowded trades). Monitor RS of your portfolio vs benchmark; exit when RS deteriorates.