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 ?
Interventions are more likely to influence birth outcomes if they are targeted to the resolution of specific risks," they contend.
To keep pace with the demand, Aon Trade Credit is fine-tuning its trade credit and political risk analysis capability, in an effort to "trickle down" to more specific risks and their unique nature in individual countries.
The report also cited specific risks to farmers: increased carbon dioxide emissions stimulate the growth of invasive weeds, while reducing the nutritional value of certain grasses.
Specific risks of having inadequate privacy policies and procedures include damage to the organization's reputation, brand or business relationships; legal liability; customer or employee distrust; and loss of revenue and market share.
Martin Morgan, CEO of DMG Information, said: "The acquisition of PPR will for the first time permit general market risks by property type and geographical area provided by PPR to be evaluated simultaneously with property specific risks provided by EDR.
Most large companies are still coming to grips with the concept of enterprise risk management and have not yet gone beyond tactical solutions to managing specific risks.