Correlation Trading

In the world of events, things rarely happen in isolation. Correlation describes how two events move together.

Positive Correlation

If Event A happens, Event B is more likely to happen.

• Example: "Biden wins election" AND "Democratic Party wins Senate".
• Strategy: If you see Biden's odds spike, you should immediately buy "Dem Senate" shares before the market catches up.

Negative Correlation

If Event A happens, Event B is less likely to happen.

• Example: "Fed hikes interest rates" AND "S&P 500 hits all-time high".
• Strategy: If unexpected inflation data comes out (Rates likely up), you sell your "S&P 500" shares immediately.

Conditional Markets

Polymarket sometimes offers "Conditional Markets" (e.g., "If Trump wins, will he fire Powell?"). These are pure plays on correlation.

---