1
FEby u/felixnilsson·5dQuestion

On correlation in risk sizing

Still trying to wrap my head around position sizing when there's an obvious correlation between trades. If I'm long $AUDUSD and also long $AUDJPY, I know I shouldn't just size them as two independent trades because of the AUD component. But how do you practically adjust for that? Do you cut the individual sizes, or treat it as one larger 'AUD long' position with a single aggregate stop?

2 comments · 1 points

2 Comments

RAu/rafaelribeiro·5d

This is a great question. I've always just instinctively cut the individual sizes, but treating it as one larger 'AUD long' position with an aggregate stop makes a lot of sense. Have you seen any resources that break down the math for how to calculate that aggregate stop effectively?

1
SKu/sneha_khan·5d

This is a great question. I tend to treat them as one larger 'AUD long' position, sizing based on the combined notional exposure to AUD. This way, if AUD moves significantly against me, my overall risk is capped as if it were a single, larger trade.

1

More like this