Managing correlated positions and overall portfolio exposure.
This scope is designed to help you build a practical understanding of Correlation & Exposure. Lessons move from core definitions to real-world context and common failure points.
Reading in order is recommended, but each lesson stands on its own.
Correlation describes how two return series move together and is central to controlling aggregate exposure and portfolio drawdowns. Understanding its meaning, limits, and practical measurement helps traders avoid hidden concentrations and improve capital survivability.
Hidden correlation describes exposures that appear diversified on the surface but share common risk drivers that can move them together during stress. This article defines the concept, explains why it matters for capital protection and survivability, and shows how to detect and control it using factor thinking, measurement, and scenario analysis.
An in-depth explanation of positive and negative correlation, why correlation matters for risk control, and how exposure can concentrate or diversify portfolio risk across assets, factors, and time. Includes practical examples and common pitfalls in estimating and using correlation.
A rigorous explanation of cross-asset correlation, why it matters for risk control, how it behaves across market regimes, and how practitioners measure and manage exposure concentration without relying on forecasts or trade tips. Focuses on survivability and the avoidance of clustered losses.
An in-depth explanation of sector concentration risk, why it matters for drawdown control and survivability, and how it manifests through correlation and exposure in real trading portfolios. Includes measurement principles, practical scenarios, and common pitfalls.
A clear, practical explanation of portfolio exposure, how correlation concentrates risk, and why disciplined exposure control supports capital protection and long-term survivability in trading portfolios. Includes measurement approaches, real-world examples, and common pitfalls to avoid.
An in-depth explanation of how correlations change under market stress, why diversification can weaken when it is needed most, and how risk managers evaluate exposure clustering and tail dependence across assets and factors to preserve capital and survivability.
Gross and net exposure describe two different views of portfolio risk. Gross exposure measures the total magnitude of long and short positions, while net exposure measures the directional imbalance. Understanding the distinction, and how correlation affects real offsetting, is essential for protecting capital and maintaining long-term survivability…
An in-depth explanation of overlapping trades, how correlation and exposure combine to amplify portfolio risk, and practical ways traders assess and control concentration across instruments, factors, and time horizons without giving specific trade advice.
A clear explanation of why the number of positions does not equal diversification, how exposure is defined and measured, and how correlation shapes true portfolio risk and survivability over time. Practical examples highlight common pitfalls and more robust ways to think about concentration.
