What is a separate risk?
A separate risk describes the risk of investing in a particular tool or by investing in a particular division of the company. The typical investment portfolio contains a wide range of tools in which investors are exposed to a large number of risks and potential rewards. On the other hand, a separate risk is a risk that can easily be distinguished from these other types of risk.
When the investor invests in only one type of stock, then its entire investment income depends on the performance of this security. If a company issued a shares works well, shares will increase, but if the company becomes insolvency, shares can become worthless. Therefore, such an investor is at a separate risk, because the entire investment of this individual could be lost due to the poor performance of a single asset. In addition, someone who invests in a wide range of securities is also exposed to a separate risk if this individual holds each typical device in a separate brokerage account. In suchThe investor would not lose everything if one asset would reduce the value, but each holding account would put the investor a different separate risk, because each account would have only one type of security.
As well as private investors, the main corporations, including investment companies, are exposed to a separate risk. The flood insurance division of the main financial company is at risk that a large number of hurricanes or coastal floods could cost the company a significant amount of money in terms of policy payments. Health insurance division and car insurance of the same company would not expose the company to the same risk, as these types of policies do not provide insured payments related to water damage.
Many investors try to solve a separate risk by expanding portfolies of this type of securities and assets. The insurance company cannot completely eliminate the risk associated with flood sales of other TYPs politician, but a company that sells life, health and automotive insurance will have less likely to have financial problems after a big storm than a company that only sells flood policies. From a structural point of view, some companies record different departments of the company as separate legal units that protect the entity from risks associated with one division or one type of assets. If all companies work as the only structure, then creditors and investors may try to strive to compensate for damages if the failure of one company division causes these groups and individuals to lose money. When the company registers its different business units as independent legal entities, then creditors and investors cannot try to compensate for losses by claiming assets that hold one of the other units of the company.