Portfolio Correlation and Exposure

This lesson is part of the ShaFX Academy structured learning system. Educational only — no profit promises, no signal services, no financial advice.

Multiple positions are one book

Long EURUSD and short USDJPY may feel like two trades. They are functionally one bet on the dollar. Correlation collapses your effective diversification when you most need it.

Exposure budgeting

Set a maximum portfolio risk (e.g. 3% of equity at any time). Allocate within that budget by correlation cluster — currencies, indices, metals — so a regime shift doesn't take down all your positions at once.

The simplest fix

Before opening a new position, ask: if my open trades all hit stop simultaneously, what's my total drawdown? If the answer is more than your daily loss limit, the position size is wrong.