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How Does the Correlation between Collateral and the Underlying Derivative Affect the Haircut?

If the collateral asset is highly correlated with the underlying derivative exposure (especially positively correlated with losses), the haircut must be larger. This is because the collateral's value is likely to drop at the same time the exposure is rising, creating wrong-way risk.

Low or negative correlation provides better risk mitigation, allowing for a smaller haircut.

What Is the Risk of ‘Wrong-Way’ Correlation in a Portfolio Margining System?
Define the Term “Wrong-Way Risk” in the Context of Collateralization
What Factors Determine the Size of a Collateral Haircut?
Why Do Options Contracts on Volatile Crypto Assets Often Have Higher Margin Requirements?