How you combine positions matters as much as individual positions. Here's portfolio-level thinking.

Correlation Awareness:

'Diversification' only works if assets aren't correlated. In stress:

• Stocks, EM, commodities, crypto often correlate to 1
• Only true diversifiers: Cash, short-term Treasuries
• Even bonds can fail (2022)

Position Correlation:

Before adding a position, ask:

• What else in my portfolio moves the same way?
• Am I adding diversification or concentration?
• In a liquidity crisis, would everything move together?

The Barbell Approach:

Extreme positions at both ends:

• High risk assets (crypto, leverage, options)
• Zero risk assets (cash, T-bills)
• Avoid mediocre middle (moderate risk with moderate return)

Example: 80% T-bills + 20% BTC (BTCUSD) = barbell

Factor Exposure:

Know your factor exposures:

• Duration (sensitive to rates)
• Beta (sensitive to market)
• Liquidity (sensitive to risk-off)
• Dollar (sensitive to DXY)

The Stress Test:

Ask: 'If liquidity crashes, what survives?'

• Cash: Survives
• Short Treasuries: Survives (usually)
• Everything else: Question it

Maximum Exposure Rules:

• Any single position: Max 20%
• Any single sector: Max 40%
• Correlated risk assets: Max 70%
• Must have 'survival' allocation: Min 20%