Price risk is the potential for the decline in the price of an asset or security relative to the rest of the market. It excludes market risk, or the potential for an entire market to go down in value. As such, price risk is the component of investing risk that can be reduced with diversification. The following are common types of price risk.
The possibility that a firm has misstated its financial results, performance or position.A business model that isn't sustainable such as a small firm that is buying growth that it can't scale.A business risk that may cause the current or future earnings of the firm to decline.
Financial risks that face the firm such as liquidity risk.
Business CycleA turn in the business cycle of an industry. For example, oversupply that leads to declining margins that impacts an entire industry for an extended period of time.
VolatilityVolatility in the price of the asset. For example, price swings in a small cap stock based on rumors or reactions to news.
Loss of investor and customer confidence in the management or culture of the firm based on behavior and performance.
This is the complete list of articles we have written about investing risk.
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