What is the Short Interest Ratio?

The Short Interest Ratio is defined as the ratio of total shares sold short to the average daily trading volume. This measure provides insight into market sentiment regarding a stock. A high short interest ratio indicates that there are many investors betting against the stock, suggesting that they expect the price to decline. Conversely, a low ratio may indicate a lack of bearish sentiment, reflecting confidence in the stock's future performance.

By focusing on the relationship between shares sold short and trading volume, the Short Interest Ratio helps investors assess the potential for a short squeeze, where short sellers may be forced to buy shares to cover their positions if the stock price rises unexpectedly. This dynamic can lead to significant price volatility, making the Short Interest Ratio a valuable tool for traders and analysts in their decision-making processes.