What is correlation risk?

What it means

Three positions each risking 1% look like 3% total risk only if they are independent. If they are all effectively long the same driver, the real exposure is closer to a single 3% position, and it will be resolved by a single event.

Why it matters

Gold correlates strongly and inversely with the dollar and with real yields, so a gold position and a short-dollar position are largely the same trade. Traders discover this during the move that closes both simultaneously.

What this changes in practice

For automated systems the problem takes a specific form: multiple strategies firing in the same direction on the same symbol within minutes of each other. We found this in our own live results — same-strategy stacking accounted for three of ten trades in one month, carrying roughly half the printed profit and an outsized share of the risk. A concurrent-position cap is the fix, and it is why ours is enforced rather than advisory.