---
title: "Min Correlation"
description: "Min Correlation is an allocation method that weights instruments to reduce how much they move together, favouring the least correlated combinations."
canonical_url: "https://fincanva.com/docs/strategies/min-correlation"
last_updated: "2026-09-04"
md_url: "https://fincanva.com/docs/strategies/min-correlation.md"
---

# Min Correlation

Min Correlation is an [allocation method](/docs/strategies/allocation-and-allocation-method) that sets weights so the instruments in a strategy move together as little as possible: instruments whose returns are closely tied to the rest of the strategy get less weight, and instruments that behave differently from the rest get more. Where [Inverse Volatility](/docs/strategies/inverse-volatility) looks at each instrument on its own, Min Correlation looks at the relationships between them.

**Also seen as:** minimum-correlation algorithm, MCA, minimum correlation weighting

## Why does low correlation matter?

A portfolio's volatility depends on how its holdings move relative to each other, not only on how volatile each one is. Two instruments with identical individual volatility give a *less* volatile combination the less correlated they are — that is the whole mechanism behind diversification, and it is the correlation term in the [mean-variance volatility formula](/docs/strategies/modern-portfolio-theory#what-is-the-efficient-frontier).

Concretely, for two instruments held at equal weight and with the same volatility σ, the combination's volatility is σ × √((1 + ρ) ÷ 2), where ρ is their correlation. At ρ = 1 the pair is no calmer than one instrument alone; the lower ρ falls, the more the pair's volatility drops below σ.

## Which settings does Min Correlation have?

None — the method's card carries no settings, because the weights fall out of the correlations themselves. The only input the method reads is the [calculation window](/docs/strategies/calculation-window) — the field labelled **In-sample** in the strategy editor — and that window is where the correlations are measured.

## Where can you use Min Correlation?

Min Correlation is a **single-strategy method only**. It is one of the eleven methods offered inside a strategy and is not one of the six offered inside a [Combined](/docs/getting-started/strategy-in-a-combined), so you cannot use it to split capital across the strategies a Combined contains.

## Defaults in Fincanva

- **Min Correlation is included from the Starter plan**; the Free plan does not offer it. See [what each plan includes](/docs/account-security/what-each-plan-includes).
- Min Correlation exposes no settings of its own — selecting the method is the whole configuration.
- The calculation window (**In-sample**) defaults to **12 months** and accepts any whole number of months from 1 upward. Correlations are measured over that window.
- Correlations are re-measured and weights recomputed at every [rebalance](/docs/backtesting/rebalance), so a min-correlation weighting shifts over the life of a backtest — and it can shift sharply, because correlations between the same instruments change over time — a [rolling correlation](/docs/analysis/rolling-correlation) is how that movement is read.
- The method needs at least two instruments to have anything to correlate: with a single [instrument](/docs/getting-started/instrument) there are no relationships to minimise.

## Worked example

A strategy holds three instruments, each with 15% volatility. Their pairwise correlations over the window are: A with B, 0.85; A with C, 0.20; B with C, 0.35.

Held at equal weight, a pair's volatility is 15% × √((1 + ρ) ÷ 2):

| Pair | Correlation | Volatility of the equal-weight pair |
|---|---|---|
| A + B | 0.85 | 15% × √0.925 = **14.4%** |
| B + C | 0.35 | 15% × √0.675 = **12.3%** |
| A + C | 0.20 | 15% × √0.600 = **11.6%** |

Every one of these pairs is built from instruments with exactly the same 15% volatility, yet the calmest pair is nearly three percentage points calmer than the most correlated one. Nothing about the individual instruments explains that difference — only the correlations do, and picking on that difference is what Min Correlation is for. Fincanva reports the same pair-by-pair reading for the strategies a Combined holds in its [correlation matrix](/docs/analysis/correlation-matrix).

## How is Min Correlation different from Risk Parity?

Both methods take correlations into account, but they aim at different things. [Risk Parity](/docs/strategies/risk-parity) targets the *split* of risk — every instrument should supply an equal share of the portfolio's total risk. Min Correlation targets the *co-movement* itself, favouring the instruments that behave least like the rest of the strategy. A highly correlated instrument can still receive a substantial risk-parity weight; under Min Correlation it is the very thing being weighted down.

Fincanva describes how these methods work; it does not recommend one. See [Is this financial advice?](/docs/investing-theory/is-this-financial-advice).