System Correlation Simulator

System Correlation Simulator

This system correlation simulator shows how correlation between two forex trading systems affects trading performance when they are traded together. The simulator compares the results of separately trading two identical trading systems which have specific level of correlation between them with the results that would have been achieved if these systems were traded concurrently (and the risk capital was split in half between them). Unlike the currency diversification simulator which assumes zero correlation between the systems, this calculator allows to specify the strength of the correlation (from 0 to 1) and its direction (either positive or negative).

1. The long-term accuracy of the trading systems (as seen over a few hundred simulated trades) will stay close to its past accuracy, while the short-term accuracy will vary.

2. The correlation between the two currency trading systems will remain constant during the course of the simulated trading. /p>

3. The risk and reward parameters will be the same for all the trades, leading to a fixed payoff ratio.

4. The trader will take all the signals that a trading systems generate (the trader has a high level of confidence in the systems).

4. The outcome of any single trade is absolutely random; the probability that it turns out as a profit or as a loss is controlled by the accuracy of the trading system.

Note: You will get similar diversification results from this calculator and the currency divesification simulator (as shown in their "Trading A & B" columns) if you set the Target Correlation to zero here and use the same system information for both A and B/set Capital Split to 50/keep the Percent Risked at the same level on the currency divesification simulator.

The calculator is made up of three parts which are described in detail below:

1. Controls & Performance Panel

The controls panel allows you to set the parameters that will guide the simulation. You can change all the cells on the controls panel that are coloured in red. Enter your trading system and money management system constraints on the System Controls panel. The Account Controls panel allows you to specify your starting account balance, the target return and if the profits are withdrawn during the course of the simulated trading. The values that you enter on these two controlling panels are used as the inputs for the generation of the trading results shown in the Simulated Account Activity Report, located at the bottom of the page. The information in this report is processed to calculate some of the common trading performance statistics which are displayed on the Performance Panel.

There are three sets of statistics generated - the first two describe the performance of the trading systems/currency pairs when they are traded on their own (in "Trading Only A" and "Trading Only A" columns), the last one represents their combined performance (Trading A & B).

The simulator will automatically recalculate everything each time you change one of the controlling cells or press one of the Recalculate buttons on the page. You can view the description of the panel elements by placing your cursor over their names. Alternatively, you can click on some of the elements to visit those parts of the site where they are described in more detail.

2. Performance Charts

This section includes two interactive charts which plot the values of the equity and the drawdown for each of the three scenarios, using the information in the corresponding columns of the Simulated Account Activity Report.

3. Simulated Account Activity Report

This part of the calculator provides detailed trade-by-trade report of the simulated trading. The report has three sections which show the values of return, equity and drawdown that were seen during each of the three generated scenarios.

Control Panel  
               
               
  System Controls            
  Target Correlation          
  Past Accuracy          
  Payoff Ratio          
  Mathem. Expectation          
  Percent Risked          
  Win (%)          
  Loss (%)          
  Exp # of trs to TR          
  Account Controls            
  Target Profit          
  Starting Balance          
               
             
Performance Statistics  
               
               
  Performance Trading Only A Trading Only B Trading A & B      
  Actual Correlation          
  Actual Accuracy      
  Total Profit or Loss      
  Percent Return | DB      
  Max Drawdown      
  Max Drawdown in %      
  Drawdown Time      
  Trades to Target      
  Max % Drawdown      
  Consistency      
  Reward/Risk Ratio      
               
               
Performance Charts  
             
               
               
               
               
               
               
Simulated Account Activity Report  
               
             
Trading Only A Trading Only B  
Return A Equity A Drawdown A Return B Equity B Drawdown B  
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Trading A & B    
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