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.

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 ?
But two basic investment strategies can help manage both systemic risk (risk affecting the economy as a whole) and nonsystemic risk (risks that affect a small part of the economy, or even a single company).
Different from the traditional portfolio model that only focuses on reducing the systemic risk, the model proposed in this paper more comprehensively examines the impact of nonsystemic risk on investment strategy, and the description of nonsystemic model helps to further diversify the risk which is brought by the centralization of portfolio strategy.
To provide further information on the noncore activities of insurers, we conduct additional analysis using two samples--a systemic risk sample and a nonsystemic risk sample.
This is clearly a case in which the systemic risk and the nonsystemic risk are multiplicatively related.