What is concentration risk?

Concentration risk, in relation to an investment portfolio, refers to the potential loss of the portfolio's value when an individual or group of securities move altogether in an unfavourable direction.

One example is an investor who might have a high conviction in commodities and allocates all of his portfolio to energy-related stocks.

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A version of this article appeared in the print edition of The Sunday Times on March 03, 2019, with the headline 'What is concentration risk?'. Print Edition | Subscribe