Relative Strength Analysis for the CMT Exam: RS Ratios, Rankings & Sector Rotation

Relative Strength vs. RSI — A Critical Distinction

Many candidates confuse Relative Strength (RS) with the Relative Strength Index (RSI). The CMT exam tests both:

• RSI is an oscillator measuring momentum (0–100 scale)
• Relative Strength compares one asset's performance to another (a ratio)

This distinction is frequently tested on CMT Level 1 and Level 2. For the complete overview, see the CMT Exam Guide 2026.

Calculating Relative Strength

RS Ratio = Price of Asset A / Price of Benchmark

• If the RS line is rising → Asset A is outperforming the benchmark
• If the RS line is falling → Asset A is underperforming
• Trendlines and moving averages can be applied to the RS line itself

Mansfield Relative Strength

The Mansfield RS normalizes the ratio by dividing by a moving average:

• Above zero: Outperforming on a relative and MA-adjusted basis
• Below zero: Underperforming
• Transitions through zero are actionable signals

Relative Rotation Graphs (RRG)

RRGs visualize relative performance in four quadrants:

1. Leading (top right): Strong and improving — overweight
2. Weakening (bottom right): Strong but deteriorating — reduce
3. Lagging (bottom left): Weak and deteriorating — underweight
4. Improving (top left): Weak but improving — accumulate

This framework is closely tied to sector rotation and portfolio management.

Applications of Relative Strength

Stock Selection

• Buy stocks with rising RS vs. their sector index
• Avoid stocks with weakening RS even if price is rising
• Use breakout signals on RS charts for confirmation

Sector Rotation

RS analysis drives sector rotation strategies:

• Identify sectors rotating from lagging to improving
• Intermarket analysis extends RS to asset classes (stocks vs. bonds, gold vs. USD)

Market Regime Detection

• Compare growth vs. value, small cap vs. large cap
• Risk-on vs. risk-off using equity/bond RS

Comparative RS Table

CMT Exam Strategies

1. Never confuse RS with RSI on the exam — read questions carefully
2. Know how to interpret an RS line chart (rising = outperforming)
3. Understand RRG quadrant rotation for portfolio decisions
4. Practice RS-based stock screening questions

Try RS-focused practice questions in our test bank. Full guide: CMT Exam 2026.