Suppose I have a portfolio consisting of N amount of positions each with R% risk and risk/reward=k. Suppose that positions are independent from each other cov(pos1, pos2)=0. Find relationship between amount of positions N to profit, and overall risk to portfolio.
Motivation behind the question:
I could open 10 positions (different instruments) with 2% risk of each, so that in the worst case scenario it yields -20% to my account. I feel that those positions are loosely correlated* and thus it is very unlikely to being stopped out on all positions. Such practice increased my overall profit, however I do not quite understand “the math” behind it and the risk I take.
* also a new important question arises: on which time frames positions or under what circumstances positions will not be correlated. I feel that the shorter the timeframe the less correlation.
I think this question requires more precise formulation, please share your thoughts below. Your answers would be highly appreciated.
Motivation behind the question:
I could open 10 positions (different instruments) with 2% risk of each, so that in the worst case scenario it yields -20% to my account. I feel that those positions are loosely correlated* and thus it is very unlikely to being stopped out on all positions. Such practice increased my overall profit, however I do not quite understand “the math” behind it and the risk I take.
* also a new important question arises: on which time frames positions or under what circumstances positions will not be correlated. I feel that the shorter the timeframe the less correlation.
I think this question requires more precise formulation, please share your thoughts below. Your answers would be highly appreciated.