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KPI of the Day – Investment: # Nova/Ursa ratio

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nova/ursa ratio

Definition

Measures the investor attitudes toward the market, by using the Nova and Ursa funds from the Rydex Fund Group.

Purpose

To indicate the direction of market sentiment.

Recommendations

Among the indicators used to assess market sentiment, the # Nova/Ursa ratio is one of the most commonly used by financiers. The indicator is used to provide daily readings on stock performance, in order to underpin a certain level of confidence regarding their evolution.

Based on these readings, bullish investors will be optimistic about the price of stock, and will, therefore, be inclined to buy. Bearish investors will be less optimistic about the stock and its price, and will therefore be inclined to sell. In short, the # Nova/Ursa ratio can help financiers to decide whether to keep their stock or sell or sell it for other financial products.

The Nova fund is bullish with a target beta of 1.5, whereas the Ursa fund is bearish with a target beta of -1.0. This ratio is important as it shows the real time flows of funds.

The # Nova/Ursa ratio can also be used to detect levels of extreme optimism and pessimism in the market. A high value of this indicator will uncover an extreme amount of optimism, whilst a low value will reflect on an extreme amount of pessimism in the market.

Several recommendations regarding optimizing the # Nova/Ursa ratio are as follows:

  • Ensure accuracy in data collection through automated readings and live market updates;
  • Promptly respond to the readings of the indicator as they provide a reliable forecast on the short-term trend of the market;
  • Benchmark on the # Nova/Ursa ratio of other companies to determine the larger market trend and consult accordingly before making investment decisions.

A high level of this KPI represents a bullish sentiment and a low value indicates a bearish sentiment.

Image sources:

KPI of the Day – Investment: # Information ratio (IR)
KPI of the Day – Investment: # Calmar ratio

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