Short Interest Ratio

Short Interest Ratio

In technical analysis and fundamental analysis, a ratio of the short-sold shares of a publicly traded company to the trading volume over a given period of time. This is an indication of the market's sentiment regarding a particular stock. A higher ratio indicates a feeling that the stock will decline in value, while a lower ratio indicates general belief that it will rise. It is not an exact indication, as it fails to take into account matters such as the potential exercise of convertible shares. Fundamental analysts interpret a high ratio as bearish because it shows an expectation for lower prices; on the other hand, technical analysts see a middling ratio as bullish as it may indicate a demand for a stock among hedge funds unable to cover a short sale. The short interest ratio is also called days to cover. See also: Hedge fund.

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Short Interest Ratio

What Does Short Interest Ratio Mean?

A sentiment indicator that is derived by dividing the short interest by the average daily volume for a stock. This indicator is used by both fundamental and technical traders to identify the prevailing sentiment in the market for a specific stock. Also known as the short ratio. It is calculated as shown here:

Investopedia explains Short Interest Ratio

This ratio helps investors determine how long (in days) it will take short sellers to cover their entire short positions if the price of a stock begins to rise. The short interest ratio also can be applied to entire exchanges to determine the sentiment of the market as a whole. If an exchange has a high short interest ratio of around 5 or greater, this can be taken as a bearish signal.

Related Terms:
• Short (or Short Position)
• Short Covering
• Short Interest
• Short Squeeze
• Volume