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Portfolio Heat Calculator
Get your total portfolio heat — the account risk tied up across open trades — plus a correlation-adjusted combined risk figure, by adding each position's risk percent and a correlation assumption. The formula is shown.
Portfolio heat is the sum of open stop-risk percentages. The combined figure uses variance = (1 - rho)sum(r_i^2) + rho(sum r_i)^2 and sqrt(variance), a correlation-adjusted estimate that treats each stop-risk as a 1σ shock.
Open position risks
| Position | Risk % |
|---|
Portfolio heat
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How it works
Total heat versus combined estimate
Total heat is the plain sum of all open trade risks. If every stop were hit, this is the percentage of account equity at risk before any slippage or gap effects.
The combined estimate applies one uniform correlation assumption, rho, across all positions. It treats each stop-risk as a 1σ shock and calculates a correlation-adjusted estimate.
Formula used
total heat = sum(r_i)
variance = (1 - rho) × sum(r_i^2) + rho × (sum r_i)^2
combined = sqrt(variance)
diversification = total heat ÷ combined
Worked example
For risks of 1%, 1% and 2%, total heat is 4%. With rho = 0.5, combined risk is about 3.3166% and the diversification ratio is about 1.2060.
How to use the output
Total heat is the hard arithmetic sum. The correlation-adjusted number is an estimate that depends heavily on the rho assumption. For highly related USD, index or gold positions, a high rho may be more conservative than treating every trade as independent.