@owenbeard
In multi-strategy portfolios, adjusting for common risk exposures requires dynamic correlation modeling. Static correlation matrices underestimate tail co-movement during crises. Techniques like dynamic conditional correlation (DCC-GARCH) or regime-switching models help adjust exposure as market conditions change. For instance, momentum and leverage strategies may behave independently in calm periods but converge during sell-offs. Stress testing joint drawdowns ensures diversification is not overstated. Real-time monitoring of correlations, especially during volatility spikes, supports active rebalancing. By embedding correlation-aware risk allocation, portfolios can prevent unintended concentration and reduce systemic vulnerability to correlated shocks across multiple strategies.
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