Kairi Relative Index

DEFINITION of 'Kairi Relative Index'

The Kairi Relative Index is a metric that traders use to to time their purchases of a stock, or to understand trends in the stock market. It measures the deviation of a stock price from the daily average price of that stock over a period of time, typically 10 to 20 days. If a stock’s price is much higher than the simple moving average of the stock over a chosen time period, the Kairi Relative Index advises you to sell your stock. If a stock’s price is much lower than the simple moving average, then the index says you should buy that stock.

BREAKING DOWN 'Kairi Relative Index'

The Kari Relative Index was invented by an investor in Japan, but there is little known about the person who actually invented it. It came into widespread usage in the middle of the 20th century, but by the 1970s it had been superseded by other, more sophisticated metrics like Welles Wilder's Relative Strength Index (RSI).  Both of these indexes are technical analysis tools known as an oscillator, which is an index based on the value of a financial asset, and constructed to oscillate between two extreme values. As the index reaches the maximum value, it indicates the asset to be overbought and due to decline in price. As the index reaches the minimum value, it indicates the asset is oversold, and due to increase in price.

This index is a tool used by technical analysts, or traders who use past data on stock prices and volumes to predict future prices in stocks. Technical traders operate under the assumption that the vast majority of available information about a stock, bond, commodity or currency is almost instantaneously incorporated in the price by market forces, and therefore it isn’t profitable to make investment decisions based on this information. Instead technical traders try to divine how stocks will move on a short-term basis by looking at the behavior of markets in similar, past situations.

Why the Kairi Relative Index Is Useful

Though the Kairi Relative Index has been supplanted by other measures, it is instructive to understand why the measure was popular with investors. By using statistical tools like a simple moving average, we can understand the true boundaries of the market’s collective estimate of the stock’s worth. Since new actionable information about a stock is not necessarily released to the public frequently, it’s a safe assumption to think that the market will not radically change its views of a company’s value very frequently.