A type of price risk that arises when the fair value of equities decreases due to unfavorable changes in the levels of an equity indice and the value of component stocks (equity units). The proportion and evolution of an equity price risk depend on the risk profile of equity investments, including shares and holdings in other entities or a general market index. Generally speaking, equity price risk is driven by equity price volatility – the risk of a decline in the value of am equity (share of stock or a portfolio, etc.)
Equity price risk can be either systematic or unsystematic. The latter can be mitigated by means of well diversification, whereas the former cannot be eliminated.
This risk is managed by establishing appropriate entry and exit strategies, and other risk management tools and reporting processes specific to equity investments.
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