Definition of Concentration Risk
What is Concentration Risk
Concentration risk is the risk or probability of loss due to an exposure or dependence on a single investment. Since there is no diversification, an adverse move in the investment price can generate a loss.
When diversification is applied to investing, the risk is spread over different types of investments, industries and geographic locations, which reduces the concentration risk.
Glossary of Terms and Phrases
A financial dictionary or glossary is an essential tool to better understand the meaning of a specialized term or phrase. It would obviously make life much easier if everyone spoke the same language and used the same financial terms and phrases but that is not realistic.
We learn new languages to communicate with each other, transact business globally and to appreciate other cultures. Global finance is a specialized language that if understood and mastered, it will provide benefits that help to decrease risk and improve investment returns. Financial literacy is the foundation of developing good investment strategies and sound decision making.