Spreading an allocation across several masters is sensible advice, and most copiers follow it. What fewer check is whether the masters they chose are making different bets. Three masters who are all long the dollar, or all long Bitcoin, or all long "risk", are one position with three names — and on the day that position goes wrong, all three copies go wrong together.
What correlation means here
Two copies are correlated if their equity tends to move up and down at the same time. Perfect correlation means they always move together; zero means no relationship; negative means one tends to rise when the other falls. Diversification — the reduction of risk from holding several things — only works when correlation is well below 1. Three copies at a correlation of 0.9 reduce your risk by almost nothing compared with one copy three times the size.
The common sources
Most correlation between masters comes from a handful of shared exposures:
- The dollar. A EUR/USD master, a GBP/USD master and a gold master are all, most days, betting against the dollar. On a strong US inflation print all three lose at 13:30 GMT.
- Risk appetite. A Bitcoin master, a NAS100 master and an AUD/JPY master are all long risk. On a bad day for equities all three fall.
- The same instrument. Two gold masters with different "styles" are still both in gold. Style differences smooth the ride a little; they do not change the destination when gold drops 3%.
- The same strategy. Two trend-following masters on different pairs lose together in a choppy, trendless month because their method fails for the same reason.
A worked example
A copier splits $9,000 evenly across three masters. Master A trades EUR/USD, Master B trades GBP/USD, Master C trades XAU/USD. On a Tuesday the US reports inflation well above forecast. The dollar rises 1%, gold falls 1.8%.
| Position | Move | Copy result | |
|---|---|---|---|
| Master A | Long EUR/USD | −1.0% | −$180 (at 2x sizing) |
| Master B | Long GBP/USD | −1.1% | −$200 |
| Master C | Long gold | −1.8% | −$270 |
| Total | −$650, or 7.2% of the $9,000 |
The copier believed they held three positions. They held one — short the dollar — in three sizes. Had one of the three been a master who was long the dollar (USD/JPY, say), the day's loss would have been roughly halved.
How to check before you follow
You do not need a spreadsheet. Two questions per master, answered from the profile:
- Which instruments? Group them: dollar pairs, yen pairs, gold and silver, crypto, indices. Two masters in the same group are probably correlated.
- Which direction, usually? Recent Trades shows whether a master is mostly a buyer or a seller of their instrument. Two dollar-pair masters who are both usually short the dollar are highly correlated; one who is usually short and one who is usually long are not.
Then watch for a week. Open Social Copies at the same time each day and note whether the copies moved the same direction. If they did on five of five days, you have one trade.
Combinations that actually diversify
Pairs that have historically had low correlation with each other:
- A gold master and a Bitcoin master — gold's near-zero link with equities against Bitcoin's positive one.
- A dollar-pair master and a USD/JPY master — one is usually short the dollar, the other long.
- A trend follower and a range trader on the same instrument — they profit in different kinds of month.
- A day trader who is flat overnight and a swing trader who holds for days — different exposures to overnight news.
None of these is guaranteed to stay uncorrelated; in a real panic almost everything falls together. But they are far better than three shades of the same bet.
Correlation changes with the weather
Correlation is not fixed. In calm, trending markets, two masters in different instruments can go their own ways for weeks; in a shock, almost every instrument moves with "risk" and correlations across the board jump toward one. This is the cruelty of diversification: it works least on the day you need it most. The defence is not to abandon it but to size for the bad day — to assume that in a real panic your three copies will behave as one and to keep the total allocation at a level where that is survivable. On ordinary days the diversification then earns its keep; on the extraordinary day, the sizing does.
What it means for the auto-stop
If your copies are correlated, they will hit their auto-stops together, and you will lose the sum of three losses on one day. If they are diversified, one may stop while the others are flat or up, and the total damage is a third. Correlation does not just decide how much you make; it decides whether your protection triggers one copy at a time or all at once.
Three masters are three bets only if their trades disagree sometimes. Group the instruments, check the usual direction, watch for a week — and if they all move together, you are diversified in name only.
This article is education, not investment advice. Trading and copy trading in leveraged instruments carry a high risk of losing the funds you allocate. Read the Risk Disclosure.