The degree to which your prediction market positions move together. Highly correlated positions amplify risk.
Correlation in prediction markets describes how likely your positions are to win or lose together. If you hold Yes on 'Democrats win the House' and 'Democrats win the Senate,' these outcomes are positively correlated — they tend to happen together.
Correlated positions amplify portfolio risk. Five uncorrelated $100 positions have much less risk than five $100 positions that all correlate at 0.8. Position sizing should account for this.
In practice, political positions are often heavily correlated. Diversifying across uncorrelated categories (politics, weather, economics) reduces portfolio variance.
The natural fluctuation in results around your expected value. High variance means bigger swings even with an edge.
BankrollThe total amount of money set aside exclusively for betting or trading. Never money you can't afford to lose.
Kelly CriterionA formula for optimal bet sizing that maximizes long-term bankroll growth based on your edge and the odds.