Correlation-Aware Position Sizer
Five positions at 1% risk each is NOT 5% risk if they are correlated. Compute your true portfolio heat and get risk-parity-adjusted sizes.
Your Positions
Correlation Matrix
Correlation between each pair (−1 to +1). Leave 0 if unsure; 1 on the diagonal is automatic.
Portfolio Risk Report
Naive Total Risk
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True Portfolio Heat
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Diversification Ratio
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Risk-Parity Adj.
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Portfolio heat uses the variance-covariance approximation: Heat = √(ΣᵢΣⱼ wᵢwⱼρᵢⱼ) × risk-unit. Highly correlated positions multiply — they do not diversify.
Frequently Asked Questions
What is portfolio heat?
The true combined risk of all open positions accounting for correlation. Three 1%-risk trades with 0.9 correlation ≈ 2.7% heat — nearly triple what you think.
What is risk parity?
Sizing positions so each contributes equally to portfolio risk. Correlated positions get smaller sizes; uncorrelated ones can be larger.
What heat level is safe?
Most professionals cap portfolio heat at 4–6%. Above 8% a single correlated shock can cause serious drawdown.
Disclaimer: Simplified variance-covariance model for education. Real portfolio risk includes fat tails, gap risk and changing correlations. Not financial advice.