From what I understand: WHR purpose is to compare you to other players (color is added after depending on your position inside the finished ranking). So in a hypothetical case where you get beaten 20 times by player A and you beat 1 times player B and A beat B once the ranking will be A (1st position), you (2nd position), B (3rd position).
You will "go down in ranking" much faster if you loose from a player with a (previous) rank much lower than you (because the algorithm will be like "hey I thought this guy is good but he got beaten by the other one").
As there are no fights between every other player, the algorithm does things transitively (if you beat X and X beat Y probably you are better than Y).