What is effective number of bets?Effective Number of Bets

How many uncorrelated bets a set of positions is really worth after accounting for correlation; n equal positions with pairwise correlation ρ are about n ÷ [1 + (n − 1) × ρ] bets.

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Risk Management & Trading Psychology
Multiple Positions: Adding Up Total Risk
Risk 1% per trade and hold 8 at once, and that's 8%. If those positions are highly correlated, they'll hit their stops together: diversified on the surface, one big position underneath.

Related terms

risk per trade
correlation
portfolio heat

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