Upside/Downside Ratio

Posted in Finance, Accounting and Economics Terms, Total Reads: 576
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Definition: Upside/Downside Ratio

Upside/Downside Ratio gives the relationship between the stocks trading up, i.e. advancing, and down, i.e. declining, on stock exchanges (New York Stock Exchange). Thus upside/downside ratio gives the market momentum at any point of time.


Mathematically it can be expressed as:

Upside/Downside Ratio = Advancing Issues on Exchange / Declining Issues on Exchange


Where, advancing issue represents the total volume of securities for which closing price was higher than their corresponding opening price for the day and Declining Issue represents the total volume of securities for which closing price was lower than their corresponding opening price for the day.


Interpretation:

When upside/downside ratio is greater than 1, it represents that there are more volumes of stock which are increasing in price than the volumes decreasing. Similarly when upside/downside ratio is less than 1 it represents that the volumes of stock which are decreasing in price are less than those which are increasing in price.


Various methods are used to smoothen this ratio like standard moving average to filter out very small movements in stock which are not very significant in the given scenario. This ratio is also an indicator of whether the market is becoming over-bought or over-sold.


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