Equity risk is a type of risk that reflects the possibility of changes in the market price of equities or equity instruments arising from positions taken by an entity (short position, long position) in equities or equity-based financial or investing instruments. (for more, see: equity risk).

Equity risk arises from investments (investments in equity) such as stock purchases/ holdings (acquired from stock markets) and specific types of projects and portfolio investments that mainly constitute equity elements. This risk involves other types of exposures: market risk, credit risk and liquidity risk, all in relation to the equity investment. Equity risk/ equity investment risk (EIR) is inherent in an entity’s holdings of equity instruments for investment purposes, or direct investments in equity of projects/ portfolios, baskets, etc.

Whereas, equity price risk is as 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.

In short, equity risk represents the impact of potential changes in the market price of equities or equity instruments arising from positions in equities or equity instruments (or equity-based instruments), while equity price risk reflects the risk that the fair value of a position will alter due to a change in equity prices. Equity risk is measured as the variance between the expected return and the actual return produced by an equity position or investment. On the other hand, equity price risk is measured as the price impact on the fair value of an equity position (usually, the entire position- i.e., the principal amount invested).