Market exposure refers to the extent to which an investment portfolio is subject to fluctuations in the overall financial market or a specific asset class. It describes the amount of risk or potential for gain that an investor or organization faces as a result of having invested in a particular market, sector, or individual security.
Example: An investor with a portfolio heavily weighted in technology stocks has significant market exposure to the technology sector. If the technology sector performs well, the investor stands to gain; conversely, if the sector performs poorly, the investor is at risk of incurring losses.
Unrealized risk and market exposure are often interconnected, as the level of market exposure can directly impact the degree of unrealized risk in a portfolio. A portfolio with high market exposure to volatile sectors will inherently carry a higher degree of unrealized risk until positions are closed.
See also
Unrealised risk
Risk-adjusted return
Portfolio construction
Trading strategy