Analytics

Using the Correlation Heatmap & Trade Clustering

Guide to reading correlation heatmaps, understanding trade clustering, and managing concentration risk.

The correlation heatmap reveals hidden relationships between your trades. Two positions might look independent but behave identically under stress. This guide explains how to read and act on correlation data.

Accessing the Heatmap

1Navigate to Analytics then Correlations

2The heatmap displays automatically once you have trades across at least 3 instruments

Reading the Heatmap

Each cell shows the correlation between two instruments based on your historical trade outcomes:

Dark green (+0.7 to +1.0): Strongly correlated—these instruments win and lose together

Light green (+0.3 to +0.7): Moderately correlated

Grey (-0.3 to +0.3): Weak correlation—largely independent

Orange (-0.7 to -0.3): Inversely correlated

Red (-1.0 to -0.7): Strongly inversely correlated—natural hedges

Hover Details

Hover over any cell to see:

Exact correlation coefficient

Number of overlapping trade periods

Statistical significance (p-value)

Cells with fewer than 15 overlapping periods show a warning icon indicating low confidence.

Diversification Score

At the top of the page, your overall diversification score (0-100) summarises the average pairwise correlation of your recent positions:

80-100: Excellent diversification

60-79: Good

40-59: Moderate concentration risk

Below 40: Significant concentration—consider reducing correlated positions

Trade Clustering View

Switch to the Cluster tab to see instruments grouped by behaviour:

Instruments in the same cluster tend to move together

The distance between clusters indicates how different they are

Cluster size represents your capital allocation to that group

What to Look For

If most of your capital sits in a single cluster, you are effectively running one large position regardless of how many instruments you trade. True diversification requires capital spread across multiple clusters.

Concentration Alerts

Configure alerts in Settings then Risk Alerts:

Warn when open position correlation exceeds a threshold (e.g. 0.6)

Warn when diversification score drops below a level (e.g. 50)

Alert when a new position would increase concentration

Strategy Correlation

The Strategy tab shows correlation between your trading strategies rather than instruments. This reveals whether your different approaches provide genuine diversification or merely express the same market view differently.

Practical Steps

1Before entering a new position: Check its correlation with existing open positions

2Weekly review: Examine your diversification score trend

3Position sizing: Reduce size on highly correlated positions

4Portfolio construction: Aim for positions across at least 2-3 distinct clusters

For a comprehensive guide to correlation analysis, read our blog post on [Trade Clustering & Correlation Analysis](/blog/trade-clustering-correlation-analysis).