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Concentration Risk Indicator
Erste Asset Management GmbH, Vienna, Austria
Erste Asset Management GmbH, Vienna, Austria
Erste Asset Management GmbH, Vienna, Austria
- 1 Erste Asset Management GmbH, Vienna, Austria
- 2 Erste Asset Management GmbH, Vienna, Austria
- 3 Erste Asset Management GmbH, Vienna, Austria
Journal of Financial Risk Management·Volume 08 (2019)·Pages 92–105·Published 4 June 2019·DOI10.4236/jfrm.2019.82007
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Abstract
In common portfolio theory 1 , a significant reduction of risk is expected when investments are split into two or more positions. A lower correlation between positions results in a higher risk-reducing portfolio effect. The credit risk of a portfolio is dependent on the default risk of all its issuers. By investing in two different debtors instead of only one, the probability of the total loss is significantly reduced and a debtor concentration is prevented. Concentration risk can be reduced by diversifying the portfolio. How can concentration risk be defined in a quantitative way? The aim of this paper is to determine a key figure, which makes concentration risk measurable.
KeywordsIssuer ConcentrationDiversificationRatingDefault Probability
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