Portfolio – Correlation decisions

Hi All:

In working with SQ and QA, what is the best way to evaluate correlation? There are several options presented but what have others found to be the most useful to keep you out of highly correlated strategies? At the moment, for my H1 strategies, I’m considering using the Hourly correlation on Profit/Loss. But I’m wondering if Hourly correlation on Open Trades would be more effective? Anyone have some real experiences to share on how they avoid being in correlated situations?

Thanks.

You can evaluate systems correlations using QA of course. I would also check the correlation table here for example http://www.myfxbook.com/forex-market/correlation
I like to run strategies where each currency is being traded only on one side. For example: long EURUSD, long USDJPY, short EURJPY … if something bad really happens I am usually in positions and they are offsetting each other

Hi Tomas. Thanks for the reply. I get what you are saying and I use the correlation table a myfxbook as you suggested.

But I think I’m asking to go a bit further into which correlation setting in QA would give me the most effective perspective. For example, let’s assume I have two strategies that trade the EURUSD on H1. The have very different entry and exit criteria and they trade both directions. When I look at them by Hour and Profit/Loss, they are not correlated and everything is green. But if I look at them by Hour and Open Positions, the may be red (since both strategies have open positions of course – which could opposing positions as well – one long/one short). So which one is the most reliable perspective as to my correlation exposure?

Thanks for your insights.

Hello,

if you consider two independent strategies even on the same pair I would mainly focus on P/L correlations. Unless it is significantly negatively correlated (this would mean they cancel each other out) I think you should be fine. You can get higher correlation using “open positions” which could also mean your EAs are trading actively (most of the time there is an open position with both systems)

Thank you Tomas.