UNIT 5
Correlated Bets
Different positions can respond to the same economic driver and behave like one large bet.
4 positions1 driverHidden concentration
How much positions may move together, especially under stress.
- Portfolio sizing
- Scenario analysis
- Historical correlation changes
- Nonlinear exposures can hide
Calling a portfolio diversified because it contains many tickers.
Correlation estimates are unstable; factor and scenario views can complement them.
60-SECOND CHEAT SHEET
Remember this.
- 1Count drivers, not tickers
- 2Stress correlation
- 3Size clusters together