Unsystematic Risk

Unsystematic risk

Also called the diversifiable risk or residual risk. The risk that is unique to a company such as a strike, the outcome of unfavorable litigation, or a natural catastrophe that can be eliminated through diversification. Related: Systematic risk.

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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.

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unsystematic risk

The risk that is specific to an industry or firm. Examples of unsystematic risk include losses caused by labor problems, nationalization of assets, or weather conditions. This type of risk can be reduced by assembling a portfolio with significant diversification so that a single event affects only a limited number of the assets. Also called diversifiable risk. Compare systematic risk.

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Unsystematic Risk

What Does Unsystematic Risk Mean?

Company- or industry-specific risk as opposed to overall market risk; unsystematic risk can be reduced through diversification. As the saying goes, “Don't put all of your eggs in one basket.” Also known as specific risk, diversifiable risk, and residual risk.

Investopedia explains Unsystematic Risk

As an example, news that affects a small number of stocks, such as a sudden labor strike, is a type of unsystematic risk.

Related Terms:
• Macroeconomic
• Microeconomics
• Risk
• Risk-Return Trade-Off
• Systematic risk