Correlation Trading
Trading connected events where one outcome influences another.
In the world of events, things rarely happen in isolation. Correlation describes how two events move together.
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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.
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