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In finance, a specific risk is a risk that affects a very small number of assets. This is sometimes referred to as " unsystematic risk ". In a balanced portfolio of assets there would be a spread between general market risk and risks specific to individual components of that portfolio.
The risk of a portfolio comprises systematic risk, also known as undiversifiable risk, and unsystematic risk which is also known as idiosyncratic risk or diversifiable risk. Systematic risk refers to the risk common to all securities—i.e. market risk. Unsystematic risk is the risk associated with individual assets.
Idiosyncratic risk is sometimes referred to as “unsystematic risk” because it affects a subset of stocks rather than most or all stocks. Investors broadly face two types of risks: systematic ...
Specific risk is also called diversifiable, unique, unsystematic, or idiosyncratic risk. Systematic risk (a.k.a. portfolio risk or market risk) refers to the risk common to all securities—except for selling short as noted below, systematic risk cannot be diversified away (within one market). Within the market portfolio, asset specific risk ...
Systematic Risk vs. Unsystematic Risk: Key Differences systematic risk vs unsystematic risk You might hold the view that when it comes to investing and the markets that all risk is the same.
Synonyms for diversifiable risk are idiosyncratic risk, unsystematic risk, and security-specific risk. Synonyms for non-diversifiable risk are systematic risk , beta risk and market risk . If one buys all the stocks in the S&P 500 one is obviously exposed only to movements in that index .
Due to the idiosyncratic nature of unsystematic risk, it can be reduced or eliminated through diversification; but since all market actors are vulnerable to systematic risk, it cannot be limited through diversification (but it may be insurable). As a result, assets whose returns are negatively correlated with broader market returns command ...
Market Risk (systematic risk) is the risk an investor experiences when the value of an investment decreases due to financial market factors. [11] The failure of a single company or cluster of companies could lead to the entire market crashing and the way to reduce this risk is through diversification into assets that are not co-related to the ...