Absolute-Relative Trend Matrix
Classify assets by absolute trend and benchmark-relative strength
- Difficulty
- Moderate
- Time to result
- ~weeks to results
- Steps
- 6
- Confidence
- 98%
The matrix evaluates every candidate on two axes: its own absolute price trend and its performance relative to a chosen benchmark. A rising absolute trend paired with rising relative strength identifies a potential core long, while weakness on both dimensions identifies a potential core short. Mixed readings are diagnostic rather than immediately actionable. A rising stock whose relative ratio weakens may be losing institutional sponsorship, while a falling stock whose relative ratio improves may be discounting better information before it becomes visible in analyst estimates. The framework therefore uses charts not as predictions but as prompts for risk-reward decisions and targeted fundamental investigation.
Origin
Stephen Suttmeier described this benchmark-relative process on Masters in Business as the method he presents to long-short hedge-fund clients.
Core principles
- 01Judge performance against an explicit benchmark.
- 02Combine absolute direction with relative performance.
- 03Treat relative deterioration as an early warning.
- 04Use fundamentals to confirm or investigate chart signals.
How to run it
- 1
Define the Benchmark
Choose the index, sector, or portfolio hurdle against which performance will be judged. The relative signal is meaningless without an explicit comparison point.
Pro tip Use the benchmark that actually governs the investor's mandate.
Watch out A convenient but irrelevant benchmark can produce misleading classifications.
- 2
Assess Absolute Trend
Determine whether the security's own price is rising, falling, or moving sideways over the decision horizon.
Pro tip Use a consistent timeframe and trend definition across the universe.
Watch out Do not label a short-lived bounce as a durable uptrend.
- 3
Assess Relative Trend
Divide or compare the security against the benchmark and determine whether the resulting ratio is rising or falling.
Pro tip Look for relative changes that appear before the absolute trend reverses.
Watch out Relative strength can rise merely because the security is falling less than a collapsing benchmark.
- 4
Classify the Candidate
Treat rising absolute and relative trends as a core-long setup and falling absolute and relative trends as a core-short setup. Place mixed configurations on a watchlist.
Pro tip Give the cleanest dual-confirmation setups priority.
Watch out Classification gauges risk and reward; it does not guarantee direction.
- 5
Investigate Divergence
When absolute and relative trends disagree, revisit the fundamental thesis and look for estimate revisions, company developments, or changing sponsorship.
Pro tip Ask fundamental analysts why a correcting stock is beginning to outperform its market.
Watch out Do not invent a fundamental explanation merely to fit the chart.
- 6
Update as Evidence Changes
Reclassify the security whenever either trend changes materially. Reduce conviction when relative leadership fails even if absolute price remains elevated.
Pro tip Record the signal that would invalidate the current classification.
Watch out Remaining attached to the original thesis defeats the framework.
In the wild
A stock trends upward while its ratio versus the portfolio benchmark also rises. The manager verifies that company fundamentals are sound and classifies it as a core long rather than treating every pullback as a broken thesis.
→ The position receives a higher strategic allocation while both trends remain constructive.
A long-held stock is still rising, but the benchmark rises faster and the relative ratio turns down. Instead of waiting for an absolute breakdown, the manager revisits earnings assumptions and position size.
→ The manager identifies deteriorating risk-reward before the price trend fully reverses.
The market falls 10 percent while one stock loses only 5 percent, causing its relative chart to improve. The analyst investigates whether estimates or business conditions are turning upward.
→ A potential future leader enters the research queue before broad recognition.
Common mistakes
Ignoring the Benchmark
A positive return can still represent damaging underperformance when the benchmark gains much more.
Treating Divergence as Proof
Relative improvement is a research signal, not proof that fundamentals have changed.
Holding Through Relative Failure
An investor who watches only absolute price may miss early evidence that institutional leadership is rotating away.
Is it for you?
Best for
It is best for benchmark-aware investors, analysts, and long-short managers comparing many securities.
Not ideal for
It is not ideal for investors who lack reliable price history or whose decisions cannot tolerate trend-based lag.
From the transcript
“You first and foremost, you identify what your benchmark is.”
“if the absolute price is trending up along with the relative price, that's where you look for core lungs.”
“a weakening relative often precedes fundamental information that's less bullish than people expect.”
From the episode
Stephen Suttmeier on Chart Portfolio of Global Markets
Stephen Suttmeier