Nonsystematic risk

(redirected from Risk, Unsystematic)

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.

References in periodicals archive ?
In order to risk measurement, they applied five criteria of the difference of the sales proposed price, bankruptcy risk, systematic risk, unsystematic risk and the sum of risk.
There are no reasons why an investor should receive a better or worse return from investing into an Islamic fund which is a function of systematic risk, unsystematic risk and capability of the fund manager," he said.
Griepentrog 1988, Systematic Risk, Unsystematic Risk, and Property-Liability Rate Regulation, Journal of Risk and Insurance, 55: 606-27.

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