Risk
Unsystematic risk
Also called Specific risk or Idiosyncratic risk
Risk unique to one company or industry, which diversification can largely remove.
How it works
A factory fire, a failed drug trial, an accounting fraud, a lost contract: these affect one company and not the market. Holding thirty unrelated companies makes any single one of them survivable.
Because it can be removed at no cost, theory says investors are not paid for bearing it. Taking concentrated single-name risk is therefore uncompensated unless you genuinely know something.
Related terms
- Systematic riskRisk that affects the whole market and cannot be removed by holding more things.
- DiversificationSpreading money across things that do not move together, so no single failure can decide your outcome.
- Concentration riskThe risk that too much of your outcome depends on one holding, sector, country or currency.
- Capital asset pricing modelA model saying an asset’s expected return depends on the risk-free rate plus its market risk.
More in Risk
Educational reference only. Nothing here is investment advice or a recommendation to buy or sell anything, and tax treatment depends on your own circumstances and the country you are in.