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Portfolio Heat Calculator

The portfolio heat calculator adds up the stop-risk across every open position, then shows both naive total heat and a correlation-adjusted estimate of your real combined exposure. Browser-only, nothing stored.

Portfolio heat is the sum of every open position's stop-risk as a percent of account equity; the correlation-adjusted estimate treats each stop-risk as a 1-sigma shock and combines them with a single correlation assumption.

Open-position risks

Uniform correlation estimate ρ (-1 to 1)

variance = (1−ρ)·Σr² + ρ·(Σr)² · combined = sqrt(variance)

Account heat

Naive total heat—

Correlation-adjusted estimate—

Diversification multiplier—

Model variance—

Add each position's stop-risk as a percent of account equity.

How it works

What this calculator does

Portfolio heat is the total account risk sitting in open positions if every stop is hit. The naive version simply adds the risk percentages. The adjusted version applies one correlation assumption so you can see how concentration changes the combined risk estimate.

The formulas

total heat = Σ risk_i

variance = (1 − ρ) × Σ risk_i² + ρ × (Σ risk_i)²

combined estimate = sqrt(variance)

diversification multiplier = total heat / combined estimate

The combined estimate treats each stop-risk as a 1σ shock. When ρ = 1, every position moves together and combined risk equals total heat. When ρ = 0, independent risks diversify in the square-root sense.

Worked example

For three open positions risking 1%, 1% and 2%, naive total heat is 4%. If correlation is 1.0, the adjusted estimate is still 4%. If correlation is 0.0, the estimate falls to about 2.45%, because the model treats the stop shocks as independent.

What it deliberately does not do

It uses one uniform correlation input, not a full covariance matrix. It also assumes the stop-risk numbers are accurate and comparable across positions. Gaps, liquidity and shared catalysts can make realized portfolio losses worse than a simple model estimate.

Frequently asked questions

What is portfolio heat?

Portfolio heat is the sum of all open-position stop risks as a percent of account equity. If three positions each risk 1%, naive heat is 3%.

Why include correlation?

Positions tied to the same market driver can lose together. A correlation input lets you distinguish independent stop risks from concentrated risk that behaves like one large trade.

What does the diversification multiplier mean?

It compares naive total heat with the correlation-adjusted estimate. A value near 1 means little diversification; a higher value means the model gives more diversification credit.

Can rho be negative?

Yes, down to -1. But strongly negative values can create an impossible variance for some risk sets, so the engine rejects combinations that are mathematically invalid.

Is this a replacement for a risk system?

No. It is a compact planning model. A full portfolio risk system would use instrument volatilities, a covariance matrix, liquidity and scenario shocks.

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Use these three pages as a simple path: understand the rules, stress a scenario, then track consistency before a payout.

1Understand the ruleCompare challenge types, drawdown floors and payout logic.2Run a breach scenarioModel intraday vs end-of-day trailing drawdown before sizing a trade.3Track consistencyCheck whether one big day is blocking payout eligibility.

Information tool only. Every result is deterministic arithmetic (for the simulator, a probability estimate) from the numbers you enter. The calculators run in your browser with no account connection and nothing stored; the pairs scanner uses delayed, cached market data (daily figures, refreshed once a day), not a live feed. This is not investment, trading, tax, or financial advice — verify against your own broker or prop firm before acting.

Disclosure. Some outbound links may be affiliate or partner links; they never change how a tool computes.