Research Rating Systems.

When we talk about investment recommendations, we often refer to buy, hold, or sell recommendations. Hold rating means that investors should not change their position in a stock if they already hold it, they should continue to do so and if they don't own it, they should continue to not own it. However, this is actually just one type of rating system and it's known as an absolute rating system, as it reflects the analysts absolute view on whether the stock is expected to outperform or underperform the whole market and therefore whether investors should buy or sell the shares when compared with any other shares in the stock market.

The other type of rating system which is actually more common on the sell side is a relative rating system this system reflects the analysts view on whether the stock is expected to outperform or underperform the sector and therefore if an investor wants to invest in a particular sector which stocks within that sector they should buy or sell the possible ratings. Here are therefore overweight, equal weight, or underweight recommendations as these ratings are informing investors who want to invest in that sector which stocks they should increase or decrease their holdings in However, since many investors also want to understand which sectors they should be buying or selling a relative rating system also usually provides a sector rating and this reflects the analyst view on whether the sector is expected to outperform or underperform the market. For example, let's say there's an analyst has the energy sector on a neutral rating and energy stocks make up 10% of the main stock market index the reportfolio manager who agrees with the analyst views will try to ensure that energy stocks make up 10% of their portfolio. However, within that 10% of their portfolio they will try to increase their allocation towards stocks which are rated as overweight by the analyst and reduce their allocation or exclude stocks rated as underweight by the analyst Relative rating systems are more common, because analysts tend to focus on a particular sector. So it's easier for them to compare and contrast stocks within their sector then trying to take a view on an individual stock versus the whole of the market.