Is SUE standardized by past changes? And, if RSI drops in first year and then rises to higher levels in the next three years, is it outperforming the index?
Yes, no
yes, no - i freaking hope
Isn’t 100 the max for RSI? So, if you go from 100 to 91 and then gain from there, how could you be underperforming?
finance03-- I also had this question. My thought was that the relative strength index was cumulative (i.e., if it went from 0.93 to 0.98, that was an appreciation). Others interpreted it as an annual index (i.e., 0.93 and 0.98 means that it underperformed 7% and 2%, respectively).
I’m still confused about this one. Looking at example 36 on page 476-477 of CFAI vol 4 shows that from March to April the Utility sector outperformed the benchmark (6.77% vs. 6.58%), which caused the Relative Strength to increase from .959 to .961, but it did not move the Relative Strength above 1, which is what it seems people are saying should happen when outperforming the benchmark.
The question did not mention which benchmark was used to calculate the RSI. Then it asked relative to the market index, did the sock outperformed. The benchmark could be either the market index or stock’s past prices. So, if the benchmark used to calculate the RSI was stock’s past prices, we can’t say it outperformed the market. CFA books says there are two benchmarks to calculate RSI. Just a thought.
finance03 Wrote: ------------------------------------------------------- > Isn’t 100 the max for RSI? So, if you go from 100 > to 91 and then gain from there, how could you be > underperforming? I’m with you finance, i didnt read anything about this topic in the texts, but just general knowledge is that a 95 RSI is pretty high
I checked with CFAI. it is no for RSI since the # is <1.
thank God… +1 for me!
yes, increasing RSI below 1 means that absolute accumulated underperformance improves, but the stock is still underperformaing relative to the index.
HK, how do you know what benchmark they used to calculate to RSI? Stock’s own past prices or market index? The question did not say the benchmark. RSI outperformnce based on past prices does not mean it outperformed market index. Just a thought. There is some explanation in the CFA book.
Alright, might not have been a BM, but reasoning for RSI is the same, whether BM or another stock or anything that has a time series of prices. Relative performance compares one string of prices over time with another, X divided by Y.
HK, the data they provided was for like 2001-2007. They asked something to the effect of “Since 2004, has the stock outperformed the market?” Most of the underperformance (i.e., the reason it was <1.0) was due to poor performance prior to 2004. If you reset the RSI to 1.0 in 2004, it would have been >1.0 in 2007.
i felt that that logic holds go blue - that the index was regaining as the question was after 2004
blue - i am in your corner as i believe it outperformed, but with no benchmark return stated, how do we in fact know its outperforming? if its a zero-sum game then it definitely outperformed during those years, but im not sure if this is the case
yes, i thought about that way too long, too. actually had outperformed marked as well at first. but even if it was reset to 1 in 2004, how can it outperform “each year” if it’s less than 1, i.e. performed weaker than the BM? And where does that resetting come from? just because they state starting in 2004…hmm, not sure. But I agree, it was a tricky one and I stuck with my gut feeling.
Man, the test is over and I’m up later than when I was studying haha Much success to everyone (I truly mean that although it’s not good for my score personally) & good night!