Correlations shift by the hour, and that matters for position stacking

[Amanhasnoname]

Many scalpers run several pairs at once and treat them as separate bets. They often aren't.

EURUSD and GBPUSD usually move together, and so do AUDUSD and NZDUSD. Being long both is closer to one larger position. The problem is that correlation isn't constant. During quiet Asian hours, pairs can drift independently, and during US data releases, they can all react to the dollar at once.

So a portfolio that looks diversified at 3am can behave like a single trade at 8:30 New York. Risk limits based on position count rather than on net dollar exposure miss that.

A simple fix is to total exposure by currency. Long EURUSD and short USDCHF are both bets against the dollar. Add them up and the real risk is visible.

Checking correlation on a rolling short window, such as the last hour of one-minute data, gives a more current read than a daily figure.

How do you limit stacked exposure across related pairs?