Correlation Risk in a Portfolio

Holding multiple open trades at once can create hidden concentration risk when those trades are correlated, even if each individual position looks properly sized on its own.

How Correlation Compounds Exposure

Suppose a trader opens a long position on one pair and a long position on another pair that is strongly positively correlated with it. If both pairs move together, the combined trades behave more like one larger position than two separate, independent ones — and a single adverse move affects both at once.

• Correlated losing trades can multiply drawdown faster than expected
• Correlation can be checked using tools available on many trading platforms
• Correlation strength can change over time, especially during volatile periods