As a mathematical rule, the higher the result of a division, the higher the numerator;
so, the larger the CRS, the better the first price is doing when compared with the
In financial terms, when the CRS indicator is moving up, the first security is outperforming
the second and investment in that security is safer one. When the CRS indicator
is moving sideways and the ratio between them remains the same both securities are
performing likewise in correlation and are on the same level. If the CRS indicator
decreases, the first security is underperforming compared to the second one. All
CRS values above 1.0 shows that a security is outperforming the base price, while
any value below 1.0 shows underperformance.
Comparative Relative Strength is generally used to relate a security's performance
with a market index. As the CRS amplifies, the first security is more valuable and
considered to be a good performer; whilst when the CRS indicator diminishes, the
security is considered to be a weak performer.
Mostly, the Comparative Strength Indicator ratio is applied by traders in deciding
which security to buy or sell, helping to pinpoint the best and the worst performers.
CRS is also used in the design of spread trades where trader will buy the better
performing security and sell the weaker one. Furthermore, the CRS indicator is also
used for tweaking and improving the existing security portfolios and maximizing
returns, since ratios give a better grasp of the financial situation in general.
Comparative Relative Strength Indicator is used to compare price of the stock with
its other group members or an index. Comparative Relative Strength is calculated
by dividing the price of first security with the required sector or security. Because
of its simplicity CRS Indicator is easily interpreted. If the indicator is moving
up it means that the former stock is performing better than the base security and
investment is a safer one. If it’s moving sidewise it means that both securities
are performing likewise and are on the same level. The downward motion is an indicator
of bad performance of former security as compared to the base stock and can generate
losses over the run. One of the wide applications of the Comparative Relative Strength
Indicator is to develop spreads over a security or a required sector. These spreads
are used to indicate the outperformed securities that are safer to retain for gaining
profits. Similarly the indicated underperforming securities can be sold to minimize
the possible loss. Comparative Relative Strength Indicator should not be confused
with Relative Strength Indicator or RSI which is entirely different from CRS. The
RSI is used to determine the over sold or over bought securities, not the relative
comparison of base and required stock like CRS.