Position Risk Calculator
If your prediction market positions are correlated, your real risk is higher than you think. Enter your positions and estimated correlation to see the actual portfolio risk.
Position Risk Calculator
Correlation between positions
Portfolio risk
$167
standard deviation(14% higher than if independent)
Why Correlation Matters
If you're long YES on “Fed cuts rates in March” and long YES on “S&P hits 6000 by April,” those positions are correlated — if rates get cut, stocks are more likely to rally. When both positions are correlated, they tend to win or lose together, which means your worst-case loss is more likely than you'd calculate treating them independently.
What Is Position Correlation?
Correlation measures how much two events move together. A correlation of +1.0 means they always resolve the same way — if one is Yes, the other is always Yes too. A correlation of 0 means they're completely independent. A correlation of -1.0 means they always move opposite — one resolving Yes means the other is always No. In prediction markets, most related positions have correlations between 0.2 and 0.7 — significant enough to matter for risk management but not obvious enough to notice without analysis.
How to Use This Calculator
- Enter your positions — the contract price, your stake, and direction (Yes or No) for each
- Estimate the correlation between each pair of positions using the presets or custom values
- See your portfolio-level risk metrics: expected P&L, max drawdown scenarios, and VaR
- Compare the correlated risk against what independent risk would look like
Worked Example
You have two positions: $500 long YES on “Fed cuts rates in June” at 40¢ and $500 long YES on “10Y yield below 4% by July” at 35¢. These are highly correlated (~0.7) — both are bets on looser monetary policy. If you treated them as independent, your worst-case loss is losing one but winning the other, which feels manageable. But with 0.7 correlation, there's a much higher probability of losing both simultaneously ($1,000 loss). The calculator might show your 95% VaR is -$850 with correlation vs. -$600 if independent — a 42% increase in tail risk that you can't see without this analysis. Before adding positions to your portfolio, check the individual trade's expected value with our Prediction Market EV Calculator and make sure each position is worth taking on its own.
Common Questions
How do I estimate correlation?
Think about whether the events share drivers. Fed policy and stock prices? High correlation. Election outcomes and weather events? Uncorrelated. If you're not sure, 'Moderate' (50%) is a reasonable default for events in the same domain.
What is VaR (Value at Risk)?
VaR tells you the worst loss you'd expect 95% of the time. If your 95% VaR is -$150, that means there's only a 5% chance you'd lose more than $150 across all your positions. It's a standard risk measure used by trading firms.
What's diversification benefit?
When positions are uncorrelated, losses on one can be offset by gains on another — your total risk is less than the sum of individual risks. Correlation reduces or eliminates this benefit. Negative diversification benefit means correlation is making your portfolio riskier than if positions were independent.
What are examples of correlated prediction market positions?
Common examples: 'Fed cuts rates' and 'S&P hits new high' (both driven by monetary policy), 'Trump wins election' and 'Republicans win Senate' (same political wave), 'Inflation above 3%' and 'Gold above $2500' (both driven by inflation expectations). Any positions sharing economic, political, or causal drivers are likely correlated.
Can correlation be negative?
Yes. Negative correlation means outcomes tend to move in opposite directions — when one wins, the other is more likely to lose. Example: 'Oil prices above $100' and 'Airline stocks up 10%' are negatively correlated. Negative correlation actually reduces your portfolio risk below what independent positions would give you — it's true diversification.