Correlation
The degree to which two assets move together. Correlated positions are one exposure to a shared factor — risk adds up instead of diversifying.
Definition
Correlation (from −1 to +1) measures the relationship between the moves of two assets. Positive correlation means they move in the same direction; negative correlation is a “natural hedge”. In practice what matters is not the coefficient itself but the shared factor: five positions in the same sector are one large exposure, whatever their charts look like.
Example
Three Polish bank stocks are not “three positions” — they are one exposure to the banking sector. Three FX pairs containing USD are one exposure to the dollar. You count risk per factor, not per ticket.
Anti-example / common mistake
Assuming diversification just because the charts look different. Correlations rise under stress (risk-off) — assets that look independent in calm markets can move together once the appetite for risk falls.