Equity Risk

Equity risk is the risk of losing money due to changes in the market value of stocks or equity investments. This type of risk arises from various factors, including market volatility, economic conditions, company performance, and changes in investor sentiment. Equity risk is inherent in all stock investments, and while it offers the potential for higher returns, it also comes with a higher likelihood of loss compared to more stable investments like bonds. Equity risk can be managed through diversification, hedging strategies, and careful analysis of market trends, but it cannot be entirely eliminated.

Example

An investor faces equity risk when the stock market declines due to economic downturns, resulting in a decrease in the value of their portfolio.