Nonsystematic risk

(redirected from Unsystematic Risks)

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 ?
The second desired attribute is a fund manager's ability to rid a securities portfolio of all unnecessary unsystematic risks by virtue of diversification.
Second, the paper demonstrates, for the first time, the application of the classic CAPM notion of systematic and unsystematic risks to regional economic growth and related location decisions.
Thus, diversification as used in this paper is relevant to the concept of minimising the systematic and unsystematic risks within real estate investment market.
Harrigan (1984) points out some possible causes of such increased unsystematic risks such as higher exit barriers and risk of excess capacity.
The fictional diversified shareholder concept is also more complete than the fictional undiversified shareholder concept in that it implies that the shareholders are risk-neutral with regard to the unsystematic risks posed by various corporate investments, although it does also have some indeterminacy in that it does not specify any particular shareholder attitude towards systematic risk.
10) From the investors' standpoint, insurable risks are firm-specific, unsystematic risks that can be eliminated by maintaining a well-diversified
These unsystematic risks are diversifiable by holding a larger portfolio of several media properties, although most public programs have been directed toward a single property purchase.
This decomposition of |Delta~TRSK indicates that decreases in banks' total risks subsequent to announcements of foreign lending agreements are primarily due to decreases in the banks' unsystematic risks.
The distinction between systematic and unsystematic risks is generally recognized.
The unsystematic risks associated with such mishaps as lawsuits, strikes, successful and unsuccessful takeovers, poor marketing plans and bad management in a single firm can be eliminated through diversification.