Concentration risk is the potential for a loss in value of an investment portfolio or a financial institution when an individual or group of exposures move together in an unfavorable direction. The implication of concentration risk is that it generates such a significant loss that recovery is unlikely. The portfolio will be liquidated or the institution will face bankruptcy.
In addition, concentration risk can be found in various types of risk exposure such as:
Generally, concentration risk is managed by concentration risk limits. There are many techniques for quantifying the concentration risk.
See also: Financial Instruments Toolbox, Spreadsheet Link, Statistics and Machine Learning Toolbox, Financial Toolbox, Datafeed Toolbox, Econometrics Toolbox, MATLAB, Database Toolbox, Trading Toolbox, credit trading, liquidity risk, transaction cost analysis, basel III