Concentration Risk
Definition
The risk of loss from having too much exposure to a single security, sector, or asset class.
Explanation
Concentration risk violates the diversification principle. A portfolio with 40% in one stock faces catastrophic risk if that stock collapses. The Herfindahl-Hirschman Index (HHI) measures portfolio concentration: sum of squared weights. An equally weighted 20-stock portfolio has HHI of 0.05; a portfolio with 50% in one stock has HHI of at least 0.25. Stoquity monitors HHI for every portfolio and flags excessive concentration in the compliance dashboard.
How Stoquity Uses This
Stoquity incorporates concentration risk analysis across its portfolio management platform, providing real-time monitoring and AI-powered insights for every portfolio.
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