A:

The Nova/Ursa ratio is a contrary indicator designed to gauge market sentiment among retail investors. The ratio gets its name from the Rydex Nova and Rydex Ursa mutual funds. Rydex Nova is a bullish fund designed to capture returns corresponding to 150% of the S&P 500's daily movements and Rydex Ursa is a bearish fund created to capture 150% of the inverse of the S&P 500's daily fluctuations. Determining the Nova/Ursa ratio is as simple as dividing the total assets from the Nova fund by the total assets in the Ursa fund.

Because it is contrarian in nature, a very high Nova/Ursa ratio is a bearish indicator because it reflects optimism, approaching euphoria, among "dumb money". The inverse is also true. A very low Nova/Ursa ratio suggests that the little guy has thrown in the towel and that weak hands have been washed out of the market - a bullish signal.

Users of the Nova/Ursa ratio believe it is a better sentiment indicator than other measures because the ratio reflects actual-dollar commitments, as opposed to investors' opinions. However, defining "high" and "low" values can be difficult, given the short existence of the Nova/Ursa ratio. Moreover, because the ratio both leads and lags the S&P500, it is not necessarily useful in identifying turning points.

For more on this topic, read Market Breadth: Introduction.

This question was answered by Justin Bynum.

RELATED FAQS
  1. What are some of the most common mutual funds that give exposure to the retail sector?

    Obtain information on some of the most popular and best performing mutual funds that investors use to gain exposure to the ... Read Answer >>
  2. How do stock dividends affect the retained earnings account?

    Understand the difference between financial ratio analysis and accounting ratio analysis. Learn why ratio analysis is important ... Read Answer >>
  3. What role does ratio analysis play in valuing a company?

    Learn about the role of ratio analysis in determining company value, including some of the most common ratios used by modern ... Read Answer >>
  4. What does the information ratio tell about the design of a mutual fund?

    Understand what the information ratio is and how to calculate it. Learn what the information ratio reveals about the design ... Read Answer >>
  5. How can a company quickly increase its liquidity ratio?

    Discover what high and low values in the liquidity ratio mean and what steps companies can take to improve liquidity ratios ... Read Answer >>
  6. What are the most popular mutual funds that invest in the automotive sector?

    Discover some of the mutual funds that investors consider utilizing to profit from gains in the automotive industry portion ... Read Answer >>
Related Articles
  1. Investing

    The 3 Best Downside Protection Equity Mutual Funds

    Learn how it is possible to profit in a bear market by owning the correct selection of mutual funds that provide downside protection and opportunity.
  2. Investing

    Analyze Investments Quickly With Ratios

    Make informed decisions about your investments with these easy equations.
  3. Investing

    RYPMX, MIDSX, OPGSX: 3 Gold-Heavy Mutual Funds to Avoid

    Learn about three gold-heavy mutual funds that you should avoid in 2016 due to their poor investment fundamentals and risky track records.
  4. Investing

    The 4 Best U.S. Large Cap Index Mutual Funds

    Discover the top four mutual funds that use passive investment approaches and follow stock indexes composed of U.S. large-cap equities.
  5. Investing

    3 REITS Mutual Funds to Avoid (SOAAX, RYCRX)

    SOAAX,KSRCX,RYCRX: Explore REIT mutual funds to avoid & discover how these funds' risk/reward metrics compare to peers and drive poor Morningstar ratings.
  6. Investing

    Sysco and Other Big Movers In Services

    The market has been slipping so far today. The Nasdaq has fallen 0.3%; the S&P 500 has fallen 0.4%; and the Dow has declined 0.5%. The Services sector (IYC) is currently lagging behind the overall ...
  7. Investing

    Financial Ratios to Spot Companies Headed for Bankruptcy

    Obtain information about specific financial ratios investors should monitor to get early warnings about companies potentially headed for bankruptcy.
  8. Financial Advisor

    Pay Attention To Your Fund’s Expense Ratio

    Even small differences in an expense ratio can have a big impact on a portfolio.
  9. Investing

    Efficiency Ratio

    There are many types of efficiency ratios, but all measure how well a company utilizes its resources to make a profit. Business managers use these ratios to determine how well they are operating ...
  10. Investing

    3 Oil-Heavy Mutual Funds to Avoid (IEFCX)

    Discover three oil-heavy mutual funds investors should avoid, and learn why these funds have poor risk-reward profiles and weak fundamentals.
RELATED TERMS
  1. Nova/Ursa Ratio

    A sentiment indicator based on the Nova and Ursa funds from the ...
  2. Current Ratio

    The current ratio is a liquidity ratio measuring a company's ...
  3. Mutual Fund Liquidity Ratio

    A ratio published monthly by the Investment Company Institute ...
  4. Combined Ratio

    A measure of profitability used by an insurance company to indicate ...
  5. Turnover Ratio

    The percentage of a mutual fund or other investment vehicle's ...
  6. Capitalization Ratios

    Indicators that measure the proportion of debt in a company’s ...
Hot Definitions
  1. Two And Twenty

    A type of compensation structure that hedge fund managers typically employ in which part of compensation is performance based. ...
  2. Market Capitalization

    The total dollar market value of all of a company's outstanding shares. Market capitalization is calculated by multiplying ...
  3. Expense Ratio

    A measure of what it costs an investment company to operate a mutual fund. An expense ratio is determined through an annual ...
  4. Mezzanine Financing

    A hybrid of debt and equity financing that is typically used to finance the expansion of existing companies. Mezzanine financing ...
  5. Long Run

    A period of time in which all factors of production and costs are variable. In the long run, firms are able to adjust all ...
  6. Quasi Contract

    A legal agreement created by the courts between two parties who did not have a previous obligation to each other. A normal ...
Trading Center