Portfolio Heat & Correlation Calculator

Risk one percent per trade is the most-quoted rule in trading, and it has a hole in it: it is a rule about trades, and risk is carried by drivers. Three index futures opened together are one bet on US equity direction, priced three times and commissioned three times.

This calculator turns what you have open into the number that actually describes your exposure — how many genuinely independent bets you are holding — and shows how often the whole book loses on the same day. Everything runs in your browser; nothing is sent anywhere.

How to read the four numbers

Effective independent bets. For positions of equal size this is n ÷ (1 + (n−1)ρ), and in general it is the ratio of squared total weight to the variance of the book. Three positions at 0.85 correlation come to 1.11. That is the honest count of ideas you are exposed to.

Risk if every stop is hit. The simple sum. It is the number that matters on the day a headline moves everything at once, and it is the number most traders never compute because they are watching the per-trade figure.

Chance all of them lose together. Computed with a one-factor Gaussian copula from your win rate and correlation — the standard way to model correlated binary outcomes. At zero correlation, three positions with a 45% win rate all lose together 16.6% of the time. At 0.85, it is 41.9%.

One-sigma swing of the book. The typical size of a day's move in the whole account, in percent, given the sizes and the correlation. It rises with correlation even though the position sizes have not changed.

Where the correlation numbers come from

The presets use round figures that reflect how these instruments typically behave, not a measurement of a specific period. That is deliberate: correlation is not a constant. It drifts, and it rises under stress — the pair that ran at 0.3 all year is not offering 0.3 of protection on a shock day.

If you want a defensible number for your own book, compute it from daily closes over the last few months, then round it up before you use it for sizing. The useful stress test is the last row of the table: what does the book look like if the correlation is 1?

Using it as a rule, not a curiosity

Budget risk by driver. Decide what you will risk on a theme — say 1% on “US equity direction today” — and split it across as many tickers as you like. Three positions at 0.33% is a real 1%. Three at 1% is a 3% bet with three sets of costs.

Check the book before adding, not after. The moment to run this is when a fourth setup appears and looks good. If the effective-bets number barely moves when you add it, the setup is not new information, it is more size.

Set a maximum for “everything stops at once.” Most traders have a per-trade limit and no book limit. A single number — two percent, three percent, whatever survives your worst plausible sequence — applied to the sum, is the missing rule.