Question:
What is meant by unsystematic risk?
What is meant by unsystematic risk?
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Diversification across sectors helps reduce unsystematic risk significantly.
Updated On: Jul 7, 2025
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Solution and Explanation
Unsystematic risk, also known as specific or diversifiable risk, is the risk that affects a particular company or industry. It arises due to internal company problems or sectoral issues, independent of market-wide factors.
Causes of Unsystematic Risk:
Managerial inefficiency or poor governance
Labor strikes or supply chain disruptions
Regulatory changes affecting a specific sector
Sudden product failure or lawsuits
Unlike systematic risk, unsystematic risk can be minimized or eliminated by holding a diversified portfolio of assets from different industries and sectors.
Managerial inefficiency or poor governance
Labor strikes or supply chain disruptions
Regulatory changes affecting a specific sector
Sudden product failure or lawsuits
Unlike systematic risk, unsystematic risk can be minimized or eliminated by holding a diversified portfolio of assets from different industries and sectors.
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