Relative valuation is a generic term that refers to the notion of comparing the price of an asset to the market value of similar assets.
Relative Valuation
In intrinsic valuation the objective is to find assets that are priced below what they should be, given their cash flow, growth and risk characteristics.
Fundamental Analysis : Relative Valuation: Don't Get Trapped
By Ben McClure November 12th, 2003 Relative valuation is a simple way to unearth low-priced companies with strong fundamentals.
The book to market ratio is a relative valuation ratio which divides the book value of a company by the market value. The ratio is meant to provide an indication of valuation.
But that doesn't mean we can get lazy and assume that relative valuations are all that matter. I would argue -- as Morgan has in the past -- that bonds are currently at bubble levels.
Relative Valuation: Don't Get Trapped
There are many ways to make money, knowing how to choose the best stocks is one of them. Guide to Stock-Picking Strategies
We look at the Sage of Omaha's methodology for evaluating value stocks.
The P/E ratio is the most widely used measure of a stock's relative valuation. The P/E ratio is determined by dividing the stock's price by its rolling 52-week earnings per share.
In investing, I encourage the concept that one must look to relative valuations and trade assets that are worth less for those that are worth more.
The most common approach for tactical asset allocation to determine the relative valuation of asset classes based on expected returns.
Risky asset
An asset whose future return is uncertain.
Investing in a "stock" means that you think the price of the stock will move, for one reason or another. Reading charts, comparing relative valuations, playing momentum, buying options, or guessing the overall movement of the market, ...
(discounting of relevant cash flows)
How does the market price compare to similar assets? (relative valuation)
Are the cash flows dependent on some other asset or event? (derivatives, contingent claim valuation) ...
Risk premium approach
A common approach for tactical asset allocation to determine the relative valuation of asset classes based on expected returns.
This happened to many of the pure Internet retailers, which were not really Internet companies, but plain retailers. Knowing a company's business and being able to place it in a group can make a huge difference in relative valuations.
 See also: Valuation, Share, Market, Stock, Investment
  
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