What Is the Nova/Ursa Ratio?

The Nova/Ursa ratio is an equity market sentiment indicator based on the bullish Nova and bearish Ursa funds from the Rydex Fund Group (a subsidiary of Guggenheim Investments). The Nova fund seeks to provide investment returns that match, before fees and expenses, 150% of the daily performance of the S&P 500® Index. The Ursa fund is an inverse fund that tracks the S&P 500 index in reverse on a 1:1 basis.

The relative amount of assets in each fund to one another can be used as a proxy for the direction of market sentiment. More specifically, a high value represents an overall bullish sentiment and a low value represents a bearish sentiment.

Key Takeaways

  • The Nova/Ursa ratio is a market direction sentiment indicator that uses a Rydex mutual fund as the numerator and another as the denominator.
  • The Rydex Nova fund is a bullish strategy while the Rydex Ursa fund is a bearish strategy.
  • As assets move in and out of these funds on a relative basis, it can serve as a proxy of investor sentiment.

How the Nova/Ursa Ration Works

The Rydex Nova fund is bullish with a target beta of 1.5, meaning the underlying securities within the fund tend to move more than the overall market. This can be positive when the market is climbing and lead to extra gains for the holders of these stocks. 

The Rydex Ursa fund is bearish with a target beta of -1.0. This means the underlying securities within this fund tend to move less than the overall market. When the market falls, this can lead to softened losses for investors

The Nova/Ursa ratio is calculated as follows:

Nova Ursa Ratio = Total Assets from Nova Fund Total Assets from Ursa Fund \begin{aligned} \text{Nova Ursa Ratio} = \frac{\text{Total Assets from Nova Fund} }{\text{Total Assets from Ursa Fund} } \\ \end{aligned} Nova Ursa Ratio=Total Assets from Ursa FundTotal Assets from Nova Fund

What Does the Nova/Ursa Ratio Tell Investors?

 A sentiment indicator is designed to represent how a group feels about the market or economy. These market indicators attempt to quantify sentiment to predict how current beliefs and positions may affect future market behavior.

The Nova/Ursa ratio is an indicator that can be used as a proxy for the direction of market sentiment. It is calculated by dividing the total assets held within the Nova Fund, a bullish fund, by the total assets in the Ursa Fund, a bearish fund.

When the ratio is above 1.0, it means more people are investing in the fund that will benefit them more when the market is climbing. When the ratio is below 1.0, it means more people are investing in the fund that may protect them when the market falls. Tracking this ratio can help people keep their fingers on the pulse of shifting market sentiment. The ratio can be valuable because rather than just measuring someone's opinion about market direction, this ratio shows where people actually are putting their money.