What is relative value?
This is a way of working out the value of an asset by looking at the value of other similar assets.
Where have you heard of relative value?
This term is widely used across economics, business and investment. When looking at stocks, some of the most popular calculations used to measure relative value include enterprise ratio and price-to-earnings ratio.
What you need to know about relative value.
Working out relative value can be used to show the attractiveness of an instrument in terms of its risk, liquidity and return. If you’re a value investor looking to buy stocks of a company, you wouldn’t just look at the financial statements of the individual company to make sure it’s profitable. You would also look at the statements of other, competing companies to help you work out the value of the stock you want to buy compared to similar assets.