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Concentration risk explained: how to tell if a portfolio is too concentrated
A portfolio is concentrated when a large share of its value depends on one position, one sector, one country or one currency. There is no single line that makes it too concentrated: it depends on whether the person knows where the dependence sits and whether it matches their own plan. Three questions show where it sits.
Updated 22.10.2026
What concentration risk is
Concentration risk is the risk that one thing going wrong does most of the damage. It can sit in a single company, in an industry, in a country's economy or in a currency. It is about shares, not about the number of positions: a portfolio can be built from many lines and still depend on one source of risk.
Three questions that reveal it
The largest position: what share of the portfolio is the biggest single holding? If it lost half its value, how much of the portfolio would go with it?
The largest sector and region: within the stock part, how much sits in one industry or one country?
The currency: how much of the value is in one currency, and is it the one the money will be spent in?
A fourth thing: hidden overlap
Several funds can own largely the same companies, so the real dependence on them is larger than any one fund's weight suggests. Checking this overlap needs the list of what each fund contains, which a table of positions does not.
Why many positions are not the same as diversification
Counting lines says little about how different they are. Ten companies in one industry share much of their risk, and three funds that track the same market are close to one position. What matters is how differently the parts react to the same event, as the guide on diversification explains.
How to read the shares
Common reference points differ between investors and between plans, and a number copied from someone else's rule says little about your own situation. A more useful comparison is with your own plan: how much dependence on one thing is acceptable for your goals, your horizon and your ability to bear a fall?
Compare the same shares over time as well: a share that grows without new money is drift, which the guide on rebalancing describes.
Concentration can be a choice
Some people are concentrated on purpose: a large stake in the company they work for, a strong tilt to their home market, a theme they follow with conviction. That is a decision, and it can be reasonable. The point is to know it is there, see its size and judge whether the possible loss fits the plan.
What concentration does to a fall
How deep a fall is depends on what the portfolio contains when it comes. A concentrated portfolio follows its largest dependence: if that part falls sharply, little elsewhere cushions it. The rise needed to recover is larger than the fall, as the guide on drawdowns shows.
What Allocaria shows
On the Overview, the portfolio health rating has an item called Concentration, next to Diversification and Currency risk.
A single holding that is not a broad fund and is a large share of the portfolio lowers the highest overall rating the portfolio can show, and the limit tightens gradually as that share grows; a broad fund the product recognises is not counted as a single stock.
The sector holding the largest share of the stocks is compared with the model plan's weight for that sector, and a portfolio far above it also lowers the highest overall rating, gradually; funds and crypto are not classified by sector and stay out of that comparison.
An item that cannot be measured is shown as not assessed, with the reason, never as a zero.
The Portfolio page shows the current exposure by sector and by country and lists each position with its weight. Weights are shares of the priced value; positions without a price are left out and counted. Each position is sorted by its own sector and country, and funds are not opened to count the companies inside them, so overlap between funds is not shown. The Overview adds each holding's share in the portfolio review.
What this does not tell you
- Not a forecast: a large share says how much depends on one thing, not which way it will move.
- Not an instruction: nothing here says what to do with a share.
- Not a verdict: the same share can suit one plan and be too much for another.
Common questions
Check the share of the largest position, sector, region and currency, then compare them with your own plan and your ability to bear a fall. No single threshold fits everyone.
Diversification is holding parts that react differently to the same event. Concentration is the opposite: a large share depends on one position, sector, country or currency.
Yes. Several funds can own largely the same companies, and a fund can lean heavily on one region or sector. Checking it needs the funds' own lists of holdings.
No. It can be a deliberate choice. The aim is to know it is there and how much it covers.
In part. The health rating has a Concentration item, and the Portfolio page shows weights by position, sector and country. Funds are not opened, so overlap between funds is not shown.
In Allocaria
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General information, not investment, tax or legal advice, and not a recommendation about any security. Allocaria is a decision-support tool; it places no orders and holds no money.