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.

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.

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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References in periodicals archive ?

The CAPM disregards unsystematic risk, because the model assumes that investors hold highly diversified portfolios, which enable investors to eliminate unsystematic risk (see Wagner & Lau, 1971; Klemosky & Martin, 1975).

The downside risk approach to cost of equity determination for Slovenian, Croatian and Serbian capital markets

Financial approaches for managing the total or unsystematic risk component include product and personal liability insurance, lowering the firm's debt-equity ratio, and hedging currency risk with futures contracts.

TEST OF CAPITAL STRUCTURE THEORY AND CORPORATE RISK MANAGEMENT

Specifically, the study decomposes volatility into systematic and unsystematic risk components and investigates the inherent changes in the underlying stocks' volatility subsequent to the resumption of SSFs.

Resumption of Single Stock Futures (SSFs) with stringent regulations and their impact on the risk characteristics of the underlying stocks

Unsystematic Risk Unsystematic risk is that portion of complete risk, which is unique to a company (industry); frequently referred to as residual or specific risk, it relates to particular economic aspects, which influence individual industries, firms, securities and projects, for instance the quality of management or equipment failure.

Theoretical aspects of risk in CAPM theory

In order to risk measurement, they applied five criteria of the difference of the sales proposed price, bankruptcy risk, systematic risk, unsystematic risk and the sum of risk.

The effects of earnings forecasts by management on firm value and risk in Tehran stock exchange

Unsystematic risk is one that arises from specific nature of company, including structure of main investors' investment product type etc.

"DEMTI method for identifying effective enablers in portfolio selection (Case study of Tehran stock exchange)"

Further, because concurrent risk adjustment explains more of the variation in current (acute) costs, it reduces unsystematic risk, which may benefit small health plans that do not have enough enrollees to diversify away unsystematic risk.

Affordable Care Act risk adjustment: overview, context, and challenges

Lord (1996) investigated a complete theoretical model relating the operating characteristics of a firm to the total, systematic, and unsystematic risk of its equity.

Return on current assets, working capital and required rate of return on equity

In general, mortality risk can be divided into different subcategories, among them unsystematic risk, adverse selection, and systematic risk.

Mortality risk and its effect on shortfall and risk management in life insurance

There are no reasons why an investor should receive a better or worse return from investing into an Islamic fund which is a function of systematic risk, unsystematic risk and capability of the fund manager," he said.

Cost of compliance

On the other hand, unsystematic risk involves any event that affects a specific investment.

The ABC's of foreign exchange risk management

Theory of CAPM suggests that firm-specific risk is irrelevant because the negative covariance between assets' returns cancel out unsystematic risk of the assets when sufficiently large numbers of assets are included in a portfolio.

Firm performance and the nature of agency problems in insiders-controlled firms: evidence from Pakistan