Nova/Ursa Ratio
Categories: Financial Theory
When someone asks us how we’re doing today, we probably just say “fine” whether we’re feeling fine or not. But if we were the nova/ursa ratio and someone asked us that question, our answer would either be “bullish” or “bearish.” That’s because that’s what the nova/ursa ratio does. It tells us, based on the performance of two funds (the Nova fund and the Ursa fund) whether the market as a whole is feeling confident (bullish) or uncertain (bullish).
The Nova fund and the Ursa fund are both managed by the Rydex Fund Group. The Nova fund is bullish, and when investor confidence is high, the securities in this fund tend to see more movement than the market as a whole. On the flip-side, the Ursa fund is bearish: when investors are feeling a little more meek, the securities in this fund see less movement than the market in general. When we divide the total assets in the Nova fund by the total assets in the Ursa fund, we get the nova/ursa ratio. If it’s over 1, the market is bearish. If it’s under 1, the market is bullish. If the ratio starts shifting in one direction or the other, it just might mean that a change in the tide of investor sentiment is coming.
