Short interest shows mean reversion, while stock prices exhibit momentum trends. Variability is high, revealing hidden patterns beyond aggregates

We look at equal weighted S&P 500 Changes of the short interest in shares, the notional and percent of float from the beginning of the year we find they are all up.

The average stock is up 12% YTD, less than the S&P because it is equal weighted.

The SI in shares and in percent are both up 24%. The notional is up 37% compounding the return and the short interest change. The big picture is higher short positions.

The similar return for the shares and % of float indicates that the float on averages is constant.

There is tremendous variation in the changes, with the standard deviation of both the percent of share change and % of float change is very high, 60%.

This means although the average is well behaved, the actual stocks have huge variations, which is missed if one just looks at the aggregates.

The highly shorted ones were more likely to be down in short interest so there is mean reversion.

The stocks that are up the most have smaller short positions in shares and in percent, and vice versa. The stocks down the most have higher short interest. Those up have higher short notionals as expected.

These stocks have large decrease in short interest and they are up 25%.

These have the largest increases in short interest. They are laggards only up 3% for the year.

The biggest change in in International Paper (IP) which is from a deal.

So the pattern is that high short interest goes down and low short interest goes up, and that stocks that rise have their short go down and that those that go down have their short interest go up.

The short interest follows a mean reversion pattern, and regarding price shows a momentum strategy.

Short interest trends display mean reversion, with higher shorted stocks declining and others rising. Stock prices follow momentum patterns, highlighting a nuanced interplay between short activity and performance.

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