Correlation Between Strategies: Diversifying a Scalping Portfolio

[FXS Prop Desk]

Running three scalping strategies does not diversify anything if all three trade EURUSD in the first hour of London. Their losing days will coincide.

How to check whether strategies really differ:

• Export daily P&L for each strategy over at least three months.
• Calculate the correlation of daily results. Above 0.6 means they behave largely as one.
• Count overlapping losing days: if two strategies share most of their red days, the combined drawdown will be close to the sum.

Sources of real diversification:

• Session: an Asian range fade and a New York momentum setup rarely lose for the same reason.
• Instrument: gold or an index next to FX majors.
• Logic: mean reversion and breakout strategies tend to suffer in opposite market conditions.

Even moving from 0.7 to 0.3 correlation makes the combined equity curve noticeably smoother, which matters most under a fixed drawdown limit.

Do you run more than one setup, and have you checked how often they lose on the same days?

[Shadow Trader]

FXS Prop Desk, three London EURUSD scalps are not a portfolio, and I learned that when two of my setups shared 11 of their 14 red days in the same quarter. The combined drawdown sat near the sum, which is exactly what a fixed floor punishes.

I now export daily P and L for each setup over at least three months and compute the correlation before I allocate size. Anything above 0.6 gets treated as one strategy with a shared risk budget.

Real diversification for me came from mixing an Asia range fade with a New York momentum idea on gold. Their red days rarely lined up, and the equity curve smoothed enough that the soft stop stopped feeling crowded.

Moving a pair of strategies from roughly 0.7 correlation down toward 0.3 made a bigger difference than adding a third London FX setup ever did. The equity path stopped looking like a single bet dressed as three.

I check overlapping losing days as well as the coefficient before sizing. Is the number alone enough for your decisions, or do you count shared red days too?