The Rolling Relative Performance Chart is a graphical representation that shows the relative performance of multiple symbols in a watchlist over a specified period.
It allows you to compare how different symbols are performing relative to each other.
Example
Let's take a look at the chart below to help better understand this tool
Key Components of the Chart
- Currency Pairs: The chart includes the following currency pairs:
- EUR/USD (Euro/US Dollar)
- USD/JPY (US Dollar/Japanese Yen)
- GBP/USD (British Pound/US Dollar)
- USD/CHF (US Dollar/Swiss Franc)
- AUD/USD (Australian Dollar/US Dollar)
- NZD/USD (New Zealand Dollar/US Dollar)
- USD/CAD (US Dollar/Canadian Dollar)
- Time Period: The chart covers a rolling 30-day period, providing a continuous update of the last 30 0 days.
- Performance Lines: Each colored line represents the relative performance of a specific currency pair over the chosen period.
How is Rolling Relative Performance calculated?
The rolling relative performance of a symbol is calculated by comparing its price changes over the selected period against a baseline.
Here’s a simplified breakdown of the process:
- Select the Time Frame: In this case, the chart updates daily to show the last 30 days of performance.
- Select the Currency Pairs: In this case, all 7 currency pairs within the watchlist are selected but you remove specific currency pairs if you'd like. Up to 8 symbols can be shown on the chart at a time.
- Calculate Daily Returns: For each currency pair, calculate the daily returns. This is typically done by taking the percentage change in the exchange rate from one day to the next.
- Aggregate Performance: Sum the daily returns over the selected period to get the cumulative performance for each currency pair.
- Normalize Data: To compare different currency pairs on the same chart, their performances are normalized. This means adjusting the data so that each line starts from the same point (usually zero or 100%) at the beginning of the period.
- Plot the Data: Each currency pair's normalized performance is plotted on the chart, allowing for easy comparison.
Why is This Chart Useful?
Trend Identification
By observing the performance lines, you can identify trends in currency pairs. For instance, a steadily rising line indicates a strengthening currency pair, while a declining line indicates weakening.
Comparative Analysis
The chart helps you understand the relative strength of different currency pairs. This is crucial for making informed trading decisions, such as deciding which pairs to trade or hedge against.
Volatility Insights
Sharp movements in the performance lines can indicate periods of high volatility. This information is useful for risk management.
Visual Clarity
The chart provides a clear, visual representation of a large amount of data, making it easier to digest and act upon compared to raw numerical data.