Nonsystematic 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.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

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.

Dictionary of Financial Terms. Copyright © 2008 Lightbulb Press, Inc. All Rights Reserved.
References in periodicals archive ?
However, the relationship between the quality of smoothed profits and non-systematic risks of financial assets is not similar in different markets.
The ideal objective of this study is to create a new approach and perspective on the relationship between quality of smoothed profits and non-systematic risks in Tehran Stock Exchange companies.
The most important point in the present study is to investigate the kind of relationship between smooth profits and non-systematic risk. This study not only emphasizes smoothing and its effect on investors' behavior but also considers the profit quality.
Is there a significant relationship between non-systematic risk and smoothed profit?
H1: There is a significant relationship between high quality smoothed profits and the company's non-systematic risk.
The dependent variable is non-systematic risk that is a risk caused by company's specific features such as type of product, capital structure of the main shareholders, etc.
As shown in table 1, the correlation coefficient between non-systematic risk variable and high quality smoothing companies variable is -0.057 (p-value: 0.23).
Prediction level of non-systematic risk according to model is shown in figure 1.
Therefore, the quality of reported profit influences the estimation of shareholders' expected output and a company's non-systematic risk. The present study endeavors to investigate empirically the relationship between non-systematic risk and profit quality according to a comparative approach to high quality and low quality profit companies in the Tehran Stock Exchange Market.
To explain the relationship between a company's non-systematic risk and high quality profit companies in Tehran Stock Exchange.

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