diversifiable risk

Diversifiable risk

Nonsystematic Risk

Risk that is unique to a certain asset or company. An example of nonsystematic risk is the possibility of poor earnings or a strike amongst a company's employees. One may mitigate nonsystematic risk by buying different of securities in the same industry and/or by buying in different industries. For example, a particular oil company has the diversifiable risk that it may drill little or no oil in a given year. An investor may mitigate this risk by investing in several different oil companies as well as in companies having nothing to do with oil. Nonsystematic risk is also called diversifiable risk. See also: Undiversifiable risk.

diversifiable risk

diversifiable risk

see CAPITAL-ASSET PRICING MODEL.
References in periodicals archive ?
Of the 37 IPSs reviewed, only four plans mentioned uncompensated risk, nonsystematic risk, or diversifiable risk.
Instead, a fiduciary must evaluate the principal's risk tolerance and investment goals, choose a commensurate level of overall portfolio market risk and expected return, and avoid wasteful diversifiable risk.
The cost of insuring a diversifiable risk is a simple calculation of the discounted value of expected (average) future damages.
Rhodes-Kropf, 2002, "The Price of Diversifiable Risk in Venture Capital and Private Equity", Working Paper, Columbia University.
The assumption is that the portfolio manager has diversified away the diversifiable risk (unsystematic risk/company specific risk) and the matter of concern for the investor should be the systematic risk (non- diversifiable/market risk) only, instead of total risk.
Diversified shareholders "are indifferent to the levels of diversifiable risk associated with different projects.
Fisher and Lorie (1970) evaluated the return distributions for the year between 1926-1965 and concluded that holding an eight stock portfolio can reduce the diversifiable risk by approximately 80% than holding a single stock.
They are: (1) a future with a known distribution and diversifiable risk known in advance, (2) a future with a known distribution and diversifiable risk not known in advance, and (3) unknowable risks or true uncertainty.
Total Risk, Diversifiable Risk and Nondiversifiable Risk: A Pedagogic Note, Journal of Financial and Quantitative Analysis (June 1980)
pt] is the variability in return consisting of diversifiable risk and non-diversifiable risk.
3) That part of the risk of a stock that can be eliminated is called diversifiable risk, while that part that cannot be eliminated is termed market risk, or undiversifiable risk.
This Article has shown that the Securities Act's standard of strict liability for IPO disclosure has the effect of inefficiently allocating diversifiable risk to entrepreneurs, resulting in distortions of entrepreneurs' behavior.