Position Correlation Matrix

Overview

This pillar analyzes the statistical relationships between all your active positions. It helps you identify hidden risks and unintended concentrations in your prediction market portfolio, enabling smarter diversification.

What It Does

The Position Correlation Matrix calculates the historical price correlation between every pair of markets you have invested in. It then visualizes this data in a heatmap, showing which of your bets tend to move in the same direction, opposite directions, or independently. This reveals your portfolio's exposure to underlying factors you might not have considered.

Why It Matters

Without this analysis, you might unknowingly build a portfolio where many bets are linked to a single theme, creating massive hidden risk. This pillar helps you diversify effectively, ensuring that a single negative event does not disproportionately impact your capital. It is essential for robust risk management.

How It Works

First, the pillar gathers the historical price data for all markets where you hold an active position. Next, it calculates the Pearson correlation coefficient for each possible pair of markets over a defined lookback period. Finally, these coefficients are plotted on a color-coded matrix, allowing for quick visual identification of strong positive or negative correlations.

Methodology

Calculates the Pearson correlation coefficient (ρ) for each pair of market price time series over a 90-day lookback window. The formula is ρ(X,Y) = cov(X,Y) / (σX * σY). Results are displayed in an N x N matrix where N is the number of active positions. A Systemic Risk Score is derived by averaging the absolute correlation values of all unique pairs.

Edge & Advantage

It prevents portfolio blowups by exposing hidden connections between seemingly unrelated bets, allowing for more resilient capital allocation.

Key Indicators

• Correlation Heatmap

  high

  A visual matrix showing the correlation coefficient, from -1 to +1, between each pair of positions.

• Systemic Risk Score

  high

  An aggregate score from 0 to 1 indicating the overall interconnectedness and concentration of your portfolio.

• Factor Loading

  medium

  Identifies the underlying market factors your portfolio is most exposed to, like economic sentiment or regulation.

Data Sources

• User's Active Positions

  Price history from markets where you currently hold shares.

• Prediction Market Price Feeds

  Historical price data for all relevant markets used for correlation calculations.

Example Questions This Pillar Answers

• → Am I overexposed to the success of a single tech company across my different bets?
• → If the stock market crashes, how will my entire prediction portfolio be affected?
• → Are my bets on an election and a specific crypto price moving together unexpectedly?

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