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5 Types of Concentration Risk

 , updated on March 21, 2021
Concentration risk is the potential for a particular investment or class of investments to threaten the health of a financial institution or investment portfolio. The following are a few types of concentration risk.

1. Credit Risk

Concentration risk was originally a term that banks used to describe credit risk in the form of lending too much to one particular customer or type of customer such as companies in a particular industry. In recent years, the term is also used to describe broader portfolio diversification risks.

2. Country Risk

Concentration of a portfolio on investments in a particular country.

3. Investment Risk

Exposure to price fluctuations in a particular investment such as a stock or a basket of stocks in the same industry.

4. Commodity Risk

Over-investment in assets that are tied in some way to the price of a commodity. For example, the price of airline stocks may be influenced by the cost of oil.

5. Political Risk

Investments that are exposed to risk from a particular political event such as an election.

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