Portfolio risk: multiple positions and correlated exposure

Start with explicit units

Position risk, notional, posted collateral and account equity answer different questions. An entry-to-stop loss estimate uses quantity times price distance for a linear position. Notional measures quantity times reference price. Summing collateral alone can hide a much larger market exposure, while summing notional alone ignores direction, hedges and execution assumptions.

A position allowance is a scenario

For a $1,000 reference account and a user-entered 1% allowance, the arithmetic allowance is $10. At a $1,200 entry-to-stop distance, quantity is $10 / $1,200 = 0.00833333 units. The allowance excludes costs and assumes execution at the stated stop. A gap, liquidity shortage or liquidation before the stop can invalidate that assumption.

Three small risks can become one large event

Suppose three positions each have a modeled $10 stop loss. Their combined modeled loss is $30, or 3% of the reference $1,000 balance. Calling each position small does not reduce that sum. If all three move together, their stops can be tested in the same event. Actual simultaneous losses may exceed the simple estimate because costs and fills change.

Different symbols are not necessarily diversification

Assets can share market, sector, collateral and venue exposures. A correlation measured over one window may change during stress. A short position may offset some directional exposure while adding basis, funding or liquidation risk. A dollar-neutral portfolio is not automatically risk-free. State the exposure you are trying to measure before claiming that one leg hedges another.

Stress more than the expected stop

Construct hypothetical cases such as all stops filling as entered, all fills being worse, a collateral asset falling, or one venue becoming unavailable. These are scenarios, not probability forecasts. Include fees for opening and closing, funding over the assumed period and transfer constraints. Avoid presenting a single account-level percentage as a complete description of risk.

Keep the reference balance consistent

If equity changes, a fixed-dollar loss and a fixed-percentage loss no longer describe the same rule. Specify whether the balance is initial capital, current equity or available collateral. Do not add unrealized gains twice. Record valuation times and currencies when combining accounts, and keep borrowed balances or liabilities visible rather than treating every asset as unencumbered equity.

Use existing tools in sequence

Use position sizing to understand units, the margin calculator for collateral and the effective-cost calculator for costs. My Hub can organize watched markets, but a watchlist is not a verified exchange position ledger. TradingHub cannot infer your complete account exposures from public market data. This guide does not prescribe a risk percentage or recommend a portfolio.

Write a reviewable risk note

A useful note lists each quantity, direction, entry, hypothetical exit, costs, settlement asset and collateral pool. Add a joint-loss case and the assumptions most likely to fail. Compare this note after each hypothetical change. The purpose is to make hidden dependencies visible, not to turn an estimate into a guaranteed loss cap.