Who this is for — Anyone combining multiple strategies who wants to know if they're truly independent. Avoids one logic's drawdown dragging the whole portfolio.
System correlation measures how much equity curves (or returns) of different strategies move together. Extends correlation between assets to the operational system level — where different signals can converge on the same risk.
In plain terms — If two systems win and lose almost always together, diversification is fake.
Practical assessment
| Metric | Use |
|---|---|
| Rolling ρ (30–60 trades) | Convergence trend |
| Stress ρ | Peaks during market drawdown |
| Tail ρ | Simultaneous outlier behavior |
Strategies with different signals can align in explosive trends or panic.
Allocation impact
- ρ rises → rebalance weights or add decorrelated component
- High ρ isn't always wrong — but must be conscious with coherent limits
- Key input for capital allocation and aggregate risk
Typical mistake — Estimating ρ once at second system launch — treating it as stable.
Example — Breakout + momentum: ρ 0.2 for months; strong trend → ρ 0.85 — both directionally long in same regime.
Summary card
- Calc: equity curve returns, not signals.
- Alert: rolling ρ > 0.7 → weight review.
- Goal: portfolio average ρ < 0.5 in calm.
Gold path — Portfolio module. Index: Gold path.