## Why Portfolio Construction Matters
Individual prediction market trades are inherently uncertain. Even with strong analysis, you'll be wrong 30-40% of the time. Portfolio construction — spreading your capital across multiple uncorrelated markets — smooths returns and reduces the risk of significant drawdowns.
## The Diversification Framework
### By Category Spread capital across different domains:
| Category | Allocation | Rationale | |----------|-----------|-----------| | Crypto | 25% | Highest liquidity, frequent markets | | Politics | 20% | Well-studied, clear catalysts | | Economics | 20% | Data-driven, model-friendly | | Sports | 15% | High volume, regular events | | Science/Tech | 10% | Niche edge opportunities | | Entertainment | 10% | Fun, accessible markets |
### By Time Horizon Mix short-term and long-term positions: - **Short-term (< 1 week)**: 30% — BTC 5-min, daily markets, weekly events - **Medium-term (1 week - 1 month)**: 40% — earnings, data releases, scheduled events - **Long-term (1-6 months)**: 30% — elections, championships, macro trends
### By Conviction Level Size positions based on your edge: - **High conviction** (strong edge): 3-5% of portfolio per market - **Medium conviction** (moderate edge): 1-3% per market - **Low conviction** (slight edge): 0.5-1% per market - **Maximum single position**: 10% of portfolio (rare exceptions)
## Correlation Management
The key to diversification is correlation. Avoid markets that move together:
### Highly Correlated (avoid concentrating) - Multiple BTC price targets at different levels - Markets in the same election (e.g., party nomination + general election) - Same-sector economic indicators
### Low Correlation (good diversification) - Crypto prices vs. sports outcomes - Political events vs. entertainment awards - Economic data vs. science milestones
## Rebalancing
Review your portfolio weekly: 1. Close positions that have reached target profit 2. Cut positions where your thesis has changed 3. Add new positions in underweight categories 4. Maintain position size limits
## Tracking Performance
Keep a spreadsheet tracking: - Each position: market, entry price, size, current price - Category allocation vs. target - Win rate by category (helps identify your strengths) - Total P&L and return on capital
## Conclusion
Portfolio construction transforms prediction market trading from a series of individual bets into a systematic investment approach. Diversify across categories, time horizons, and conviction levels to build consistent, sustainable returns.