Relative strength
How do we measure whether one asset is beating another, rather than just rising itself?
In plain words
Relative strength measures one asset against another through the ratio of their prices. When the ratio rises, the first asset is outperforming the second, whether both are rising or falling. It describes the gap between two assets, not the direction of either on its own.
Why it matters
An asset can post a large gain and still be losing ground to a benchmark. Reading the ratio separates performance the asset earned from performance the whole market supplied, which matters for anyone deciding where risk is being rewarded.
In a real week: ETH, week of 3 May 2021
In the week of 3 May 2021, ETH rose 33.05%, from 2949.33 to 3923.95, beating BTC by 30.11 percentage points; the ETH/BTC ratio gained 29.25% over the week. The two assets moved together only moderately, with an hourly correlation of 0.62, so the ratio's climb reflected a genuine divergence rather than a shared market drift.
A common mistake
Reading a rising ratio as a reason the first asset is cheap or safe. It only shows which of two assets gained more, and both can fall together while the ratio climbs.