A Relative Rotation Graph plots each sector's relative strength against a benchmark (Nifty 50) on two axes. The X-axis shows RS-Ratio (trend of relative performance) and the Y-axis shows RS-Momentum (rate of change of that trend). Both are normalized to 100.
Leading (top-right) — RS-Ratio > 100, RS-Momentum > 100. The sector is outperforming the benchmark AND the outperformance is accelerating. Strongest relative position.
Weakening (bottom-right) — RS-Ratio > 100, RS-Momentum < 100. Still outperforming, but momentum is fading. The relative gains are slowing — early warning of a potential rotation out.
Lagging (bottom-left) — RS-Ratio < 100, RS-Momentum < 100. Underperforming the benchmark AND getting worse. Weakest relative position. Avoid or underweight.
Improving (top-left) — RS-Ratio < 100, RS-Momentum > 100. Still underperforming, but momentum is turning positive. Early signal of recovery — watch for potential entry.
Sectors typically rotate clockwise: Leading → Weakening → Lagging → Improving → Leading. This happens because momentum (Y-axis) changes direction before the trend (X-axis). When you see a sector entering the Improving quadrant from Lagging, it could be an early opportunity. When it enters Weakening from Leading, consider reducing exposure.
Each sector has an 8-week trailing line showing its recent path. A long tail moving rapidly toward Leading indicates strong momentum. A tail curling back (changing direction) signals a potential rotation reversal. Short, clustered tails mean the sector is consolidating its relative position.
Overweight sectors in the Leading quadrant — they have both trend and momentum in their favor. Watch sectors in Improving — they're the next potential leaders. Reduce exposure to Weakening sectors. Avoid Lagging sectors unless you see the tail curling upward into Improving.
RRG shows relative performance, not absolute. A sector in Leading can still have negative absolute returns if the entire market is falling — it's just falling less. Rotation is not always perfectly clockwise; sectors can reverse or stall. Use RRG as one input alongside fundamental analysis, not as a standalone signal.