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Nonsystematic Risk
(redirected from Non-Systematic Risk)

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Nonsystematic risk
Nonmarket or firm-specific risk factors that can be eliminated by diversification. Also called unique risk or diversifiable risk. Systematic risk refers to risk factors common to the entire economy.

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.

Nonsystematic risk. Nonsystematic risk results from unpredictable factors, such as poor management decisions, successful competitive products, or suddenly obsolete technologies that may affect the securities issued by a particular company or group of similar companies.

Portfolio diversification, which means spreading your investment among a number of asset subclasses and individual issuers within those subclasses, can help counter nonsystematic risk.



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A state, for example, may be selected as a location because of its tendency to grow at above systematic risk-adjusted rates due to non-systematic risk characteristics.
These results indicated higher level of non-systematic risk in bank funds than non-bank ones during 2003 to 2004.
Large non-systematic risk found in the return of paintings also suggested that collectors should diversify to other assets.
 
 
 
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