In the top-right corner of the RRG -GO- screen on your Bloomberg terminal you will find two amber boxes that hold the settings for range and period as well as a check-box to switch the trails on or off. See figure 1.
The period parameter controls on what time frame the Relative Rotation Graph and the observations that make up the trail will be based. Although it can go up to yearly I would advise not to go beyond weekly, maybe monthly in some rare very long-term scenarios. See figure 2.
The best way to understand this periodicity is to look at it as if you are looking at a regular bar-chart. You can base a bar-chart on a weekly or a daily time-frame. On the weekly time frame all price action of one week will be condensed into one bar giving a smoother longer-term look on developing trends. Calculations of indicators based on such a weekly bar-chart will use the open, high, low and close of that weekly bar instead of the data of the individual daily bars.
It is no different for a Relative Rotation Graph. When set to weekly (default) the RRG will use weekly observations to calculate the trail, when set to daily RRG will use the daily observations to calculate the trail. The result is similar to switching between daily and weekly bars on a bar-chart. The daily version will show more detail. See figure 3 & 4.
Figure 3 shows the S&P 500 sectors on a weekly RRG with a 3 period trail. Figure 4 shows the same universe on a daily RRG with a 15 period trail. Both RRGs cover the same period of history but look at the difference in rotation! An example that immediately stands out is the rotation of the Utilities sector. On the weekly plot Utilities are in the lagging quadrant but showing a sharp turn up over the past three weeks. On the daily RRG this turn up has been picked up much faster and the sector has just crossed into the leading quadrant after having travelled through the improving area the 2-3 weeks prior.
So when you switch from a weekly to a daily RRG you will see much faster rotation on the plot, one observation on the trail of a weekly RRG equals five observations on the trail of a daily RRG.
Aligning analyses on Weekly and Daily RRGs is good practice just like it is in your regular analysis of bar-charts and their indicators.
RANGE & TRAIL
The second parameter is the range. What is meant here is the range of the trail that is shown on the RRG. It is set at 12 PERIODS by default but you can change it to anything you like up to 52. The range parameter controls how many periods will be visible in the trail. The check-box "trail" enables you to switch the trail on or off all-together. Figure 3 shows the S&P universe with a 3 period weekly trail while figure 5 shows that same RRG with a 12 period trail. Please note that the only difference between the two pictures is the length of the visible trail. There is no difference in the positioning of the last three observations on either chart. You can check this on your own terminal by hovering your mouse over the observations in the trail and compare the readings.
The Range setting therefore does NOTHING with respect to the calculation of the numbers to position a security on the RRG.
As you can imagine 'playing' with these settings will help you to get a clearer picture on your screen. It is obvious that you can plot longer tails on a Relative Rotation Graph with only a few items on the screen than when you are watching a large universe with lots of securities.
Switching the trails on or off using the chack-box can be very helpful. When you switch all trails off on a crowded RRG you can hover your mouse over the individual securites. When you stop on a security the trail will show up enabling you to study the trail without being cluttered by many other trails in the same area.
If you decide you would like to keep the trail for that specific security simply left-click your mouse and the trail for that security will be locked. Using this facility you can work on a RRG with a lot of securities and only show the trails of the ones you find are worth watching. See figure 6.
There is no right or wrong! Simply find the set of parameters that fits your style and horizon balancing longer and shorter trails with the number of items on the plot and the periodicity in combination with your investment horizon.
RRG discussion and support forum
This forum is dedicated to Relative Rotation Graphs and is your resource for all your questions, suggestions and feedback. We love to hear from you. The forum has several sub-categories. The FAQ is a closed forum where you can read answers to some most Frequently Asked Questions on RRG. RRG General is the area where you can post and get answers with regard to general RRQ questions or issues. RRG on partner systems is where you will find and can ask any questions specifically geared towards the implementations of RRG by our partners
- Julius de Kempenaer
- Friday, 24 January 2014