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Comment by lixtra | Hacker News Reader

A little bit OT: did anybody come up with a way to graph two stocks such that you see individual long term performance but also relative performance?

I.e. you can plot them on different scales, so that they both start at the same position. Then you easily see which stock outperformed. But what if you want to see when it was a good time to switch as well?

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You could potentially plot spread like this: http://archive.nytimes.com/www.nytimes.com/interactive/2011/...

It sounds like you are talking about a "price relative" or "relative strength" or "Bogle tell tale" chart.

Use a log scale, it makes easier to compare the performance in different periods and the spread between the two lines gives you the relative performance (when both stocks have the same performance the lines move in parallel, when the spread widens the upper line is performing better and vice versa).

This ask avoids the problem of having the entire comparison determined by the arbitrary or deceptive choice of start date for baseline price.

Divide each price x_t by x_0 and multiply by 100, so at t=0 the price equals 100 and at each t>0 x_t-100 is the percent change relative to t=0. Since your profit/loss is proportional to the stock's relative change since you bought it, this is what you want to know.

Correlation? https://www.investopedia.com/terms/p/pairstrade.asp

You plot them as ROI or other normalized value, eg by dividing the price of the stock by its initial value.

Then you can compare two stocks by looking at their return at T1 relative to their price at T0. This solves the problem that you’re better off investing in a $5 stock going to $10 than a $100 stock going to $115, since it normalizes it to 1 going to 2 and 1 going to 1.15 respectively.

For switching you may need something more complicated, like looking at the price at Tn divide by the price at Tn-1.

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