Trend Trading Research

Relative return is a measure of an investment relative to a benchmark.

For example a UK based equity fund may measure it’s return relative to the FTSE 100 or FTSE All Share index. When the relative return is positive, the investment has outperformed the benchmark, conversely when the relative return is negative the investment has underperformed the benchmark.

Although the relative return is widely used to market various investment funds, investors need to exercise care, as fund may well outperform the benchmark but still loose them money. For example in a falling market the index may fall by 20%, if the investment falls by just 10% it will have outperformed the market and provided a positive relative return of 10% despite loosing 10% of the capital invested (thus the absolute return would be -10%).

An investor hoping to achieve a positive absolute return, no matter what the market conditions would need to use an absolute return strategy or invest in a fund that does so.