Internal Rotation: Medium vs Long Term

Research Notes April 2026 > https://www.unum.capital/post/rapril2026

Trade Local & Global Financial Markets with Unum Capital.

To get started, email tradingdesk@unum.co.za

Disclosure: The graphic below was created using an artificial intelligence tool, based on the analyst's own data.

---

A Relative Rotation Graph (RRG) is a technical analysis visualization tool designed to show the relative strength and momentum of multiple securities—such as stocks, sectors, or asset classes—compared to a common benchmark index.

Developed by Julius de Kempenaer, RRGs help analysts easily identify market leadership and visualize how capital is rotating between different areas of the market over time.

How It Works

An RRG plots assets on a chart divided into four distinct quadrants based on two proprietary metrics:

• JdK RS-Ratio (X-Axis): Measures the relative strength (the longer-term trend) of the asset compared to the benchmark. A reading on the right half of the graph indicates the asset is in a relative uptrend, while the left half indicates a relative downtrend.

• JdK RS-Momentum (Y-Axis): Measures the momentum of that relative strength. It shows how fast the relative strength trend is changing. The top half indicates positive momentum, and the bottom half indicates negative momentum.

The Four Quadrants

Because momentum typically precedes price, assets tend to rotate through the four quadrants in a clockwise direction over time:

1. Leading (Top Right): High relative strength and positive momentum. The asset is outperforming the benchmark, and that outperformance is accelerating.

2. Weakening (Bottom Right): High relative strength but negative momentum. The asset is still outperforming the benchmark overall, but it is losing steam and the trend is decelerating.

3. Lagging (Bottom Left): Low relative strength and negative momentum. The asset is underperforming the benchmark, and the downward trend is strong.

4. Improving (Top Left): Low relative strength but positive momentum. The asset is still underperforming historically, but its relative momentum is picking up, suggesting a potential shift toward leadership.

Why It Is Useful

• Visualizing Sector Rotation: It allows investors to see the "big picture" of a market universe at a single glance, making it easy to identify which sectors are driving the market and which are falling behind.

• Pair Trading: Traders can easily spot structural opportunities by pairing an asset deep in the "Leading" quadrant (to buy) against an asset deep in the "Lagging" quadrant (to short).

• Relative Trend Identification: Rather than just looking at absolute price charts, an RRG isolates how an asset is performing strictly in relation to the broader market, filtering out general market noise.

Lester Davids

Senior Investment Analyst: Unum Capital